Question

Indigo Corporation begins business on April 2, 2015. The corporation has startup expenditures of $54,000. If Indigo Corporation elects § 195, determine the total amount that Indigo may deduct in 2015.

1) $2,650
2) $5,000
3) $3,650
4) $1,000
5) None of these choices are correct.

Answer 1

Indigo Corporation may deduct a total amount of $3,650 in 2015 based on their startup expenditures and IRS section 195 election. The correct option is C.

Step-by-step explanation:

According to the information given, Indigo Corporation has startup expenditures of $54,000 and elects § 195. Under section 195 of the Internal Revenue Code, startup expenditures are generally deducted over a period of 180 months beginning in the month in which the business starts.

In 2015, since Indigo Corporation begins business on April 2nd, and startup expenditures are typically deducted over 180 months, Indigo Corporation can deduct a pro-rated amount for the remaining months of the year. To calculate the deduction, we can use the following formula:

Deduction = (Startup Expenditures / 180) x (12 - Month of Business Start + 1)

Plugging in the numbers, we get:

Deduction = ($54,000 / 180) x (12 - 4 + 1) = $3,650

Therefore, the total amount that Indigo Corporation may deduct in 2015 is $3,650