Opal Corporation, an accrual method, calendar year taxpayer, was formed and began operations on July 1, 2018. The following expenses were incurred during the first tax year (July 1 through December 31, 2018) of operations. Assuming a § 248 election, what is Opal's deduction for organizational expenditures for 2018?
A) $593.
B) $460.
C) $5,427.
D) $5,627.
E) None of the above.

Question

Opal Corporation, an accrual method, calendar year taxpayer, was formed and began operations on July 1, 2018. The following expenses were incurred during the first tax year (July 1 through December 31, 2018) of operations.  Assuming a § 248 election, what is Opal's deduction for organizational expenditures for 2018?
A) $593. 
B) $460. 
C) $5,427. 
D) $5,627. 
E) None of the above.

Quizplus · Accepted Answer

Opal can elect to amortize up to $5,000 of its organizational expenditures and must reduce the $5,000 limitation by the amount of organizational expenditures in excess of $50,000. In this case, Opal incurred $8,427 ($4,000 + $4,500 + $927) of organizational expenditures during 2018. Therefore, its $5,000 limitation is reduced by $3,427 ($8,427 – $5,000). Opal can deduct $593 of the $3,427 in 2018, and it must amortize the remaining $2,834 over a 180-month period beginning in 2019. Thus, Opal's total deduction for organizational expenditures for 2018 is $5,427 ($593 + $4,834).

Opal Corporation, an Accrual Method, Calendar Year Taxpayer, Was Formed