Question

Ajax Inc. was formed on April 25 and elected a calendar year for tax purposes. Ajax paid $11,800 to the attorney who drew up the articles of incorporation and $5,700 to the CPA who advised the corporation concerning the accounting and tax implications of its organization. Ajax began business operations on July 15. To what extent can Ajax deduct its $17,500 organizational costs on its first tax return

Answer 1

Answer: $5416.64

Step-by-step explanation:

Based on the information given, $5000 will be deducted from its organizational cost of $17500, and we'll have $12500. Then, the capitalized cost over 6 months that's 180 days will be:

= Non deductible cost / 180 months

= $12500 / 180

= $69.44 per month

Since Ajax Inc began operation in July, the ammortization will be:

= $69.44 × 6 months

= $416.64

The amount that Ajax can deduct from its $17,500 organizational costs on its first tax return will be:

= $5000 + $416.64

= $5416.64