Question

A taxpayer incurred $52,000 in startup costs. The taxpayer then began the active conduct of the business. The taxpayer made no affirmative election with respect to these start up costs. How much of the $52,000 start up costs may deduct immediately? (Do NOT include any amortization deduction for the startup costs. Just consider the immediate deduction only.)

Answer 1

The taxpayer may deduct up to $5,000 of startup costs immediately. Startup costs are the expenses incurred before the business begins its active operations. However, there is an exception that allows a taxpayer to deduct up to $5,000 of startup costs immediately in the year the business begins.

Step-by-step explanation:

When considering immediate deductions for startup costs without an affirmative election, a taxpayer may deduct up to $5,000 of startup expenses in the year the business began as per the current IRS guidelines. However, this immediate deduction is reduced by the amount that the total startup cost exceeds $50,000. In the scenario described, a taxpayer has incurred $52,000 in startup costs. The deduction would be reduced by $2,000 ($52,000 - $50,000), leaving an immediate deductible amount of $3,000 ($5,000 - $2,000).

To further illustrate, if the startup costs were exactly $50,000 or less, the immediate deduction would be the full $5,000. However, since the costs are $52,000, the deduction amount exceeds the threshold by $2,000, resulting in the decrease of the immediate expense deduction eligibility by the same amount.

It's important also to note that any remaining costs over the immediate deductible amount can usually be amortized over 180 months starting with the month in which the business begins. However, as instructed, amortization is not considered in this immediate deduction scenario.