Question

In March of the current year, Marcus began investigating the possibility of opening a specialty clothing store. From March through June, he spent $2,300 on a market survey, $2,700 in consulting fees to find the best location and $3,600 in professional fees setting up an accounting and inventory system. Although he had never run his own business before, on August 1 he opened his doors for business. What is the maximum amount of deduction for the current year attributable to these expenditures?

Answer 1

Total deduction attributable to the current year = $5,000 + $100= $5,100

Step-by-step explanation:

First, the multiple choices for the question

a. $8,600

b. $5,000

c. $5,100

d. $5,240

e. 0

Solution

First, we determine the total expenditure for the start-up as follows

Market survey + Consulting fees + Professional Fees

= $2,300 + $2,700 + $3,600 = $8,600

However, we are also aware that only $5,000 can be out rightly deducted in the first year of business, while the remaining ($8,600-$5,000) = $3,600 is to be deducted over a period of 180 months

Deduction over 180 months = $3,600 / 180 months = $20 per month

Finally, since the business started August 1st, it means the business ran form August to December (5 months) for the current year.

Hence, the additional deduction for the year = $20 x 5 = $100

Total deduction attributable to the current year = $5,000 + $100= $5,100