Question

Brown Corp., a calendar-year taxpayer, was organized and actively began operations on July 1, 2013, and incurred the following costs:Legal fees to obtain corporate charter$45,000Commission paid to underwriter30,000Other stock issue costs15,000Brown wishes to amortize its organizational costs over the shortest period allowed for tax purposes. In 2013, what amount should Brown deduct for the amortization of organizational expenses (excluding any immediate expensing allowed)?

Answer 1

The amount of amortized organizational expenses for the year 2013 would be $6,333 ( approximately )

Step-by-step explanation:

First of all the important point here to note is that while calculating the amortized organizational cost we only include the legal fee for drafting the corporate charter and not the commission paid to underwriter or cost incurred while selling the stock.

In the legal fee for corporate charter too there are limitations , as only $50,000 are allowed as total expenditure to be amortized over a period of 15 years or 180 months. Where for the first year the limitation allowed is $5000 and rest of the amount would be amortized over 180 months.

So $45,000 - $5000 = $40,000

$40000 / 180 = $222.22

Now multiplying this by 6 months as the operations of company began on 1 July , 2013,

$222.22 x 6 = $1333.32

Now adding this amount to $5000 will give us the total amortized organizational expense,

$5000 + $1333.32 = $6,333.32

= $6,333 ( approximately )