Daschle LLC completed some research and development during June of the current year. The related costs were $60,000. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization expense Daschle may deduct during the current year?
A) $0
B) $6,500
C) $7,000
D) $12,000
E) None of these

Question

Quizplus · Accepted Answer

Under the tax rules, research and development costs are generally required to be capitalized and amortized over a period of no less than 60 months. However, there is an option to amortize the costs over a shorter period if the taxpayer can show that the technology will become obsolete more quickly than in 60 months.

Assuming Daschle LLC can meet this requirement and chooses to amortize the costs over a period of 5 years, the annual amortization expense would be $12,000 ($60,000/5 years). Therefore, the total amortization expense Daschle may deduct during the current year (assuming they started amortizing in June) would be $7,000 ($12,000 x 7/12 months).

Therefore, choice C is the best option.

Daschle LLC Completed Some Research and Development During June of the Current