Question

Xavier Corporation begins business on March 1, 2018. The corporation incurs start-up expenditures of $38,000.

Round your final answers to the nearest dollar.
a. If Xavier elects amortization under § 195, the total start-up expenditures that Xavier may deduct in 2018 is $___
b. Assume the same facts except the start-up costs totaled $52,000.
The total start-up expenditures that Xavier may deduct in 2018 is $___.

Answer 1

a. The total start-up expenditures that Xavier may deduct in 2018 is $38,000. b. The total start-up expenditures that Xavier may deduct in 2018 is $50,000.

Step-by-step explanation:

a. To calculate the amount that Xavier Corporation may deduct in 2018, we need to determine the amount of start-up expenditures that can be amortized. Under § 195, start-up expenditures can be deducted up to $5,000 in the first year, with a phase-out threshold of $50,000. For amounts exceeding the threshold, the deduction is reduced dollar-for-dollar. In this case, the start-up expenditures are $38,000, which is below the threshold. Therefore, Xavier Corporation may deduct the full amount of $38,000 in 2018.

b. If the start-up costs total $52,000, they exceed the phase-out threshold of $50,000. As a result, the deduction is reduced dollar-for-dollar for the amount exceeding the threshold. In this case, the excess start-up costs are $2,000. Therefore, Xavier Corporation may deduct $50,000 in 2018.