Question

Alt Partnership, a cash-basis, calendar-year entity, began business on October 1, 2019. Alt incurred and paid the following in 2019: Legal fees to prepare the partnership agreement $12,000 Accounting fees to prepare the representations in offering materials 15,000 Alt elected to amortize costs. What was the maximum amount (ignoring any immediate expensing allowed) that Alt may deduct on the 2019 partnership return?

Answer 1

Answer: B

Explanation :Choice "b" is correct. Eligible expenditures up to $5,000 can be deducted in the first year (with overall limitations). Additional expenditures are amortized over 180 months beginning with the date they begin business. Legal fees to prepare the partnership agreement ($23,000) are eligible for this treatment, but sales and promotional expenses ($15,000) are not deductible or amortizable.

The first year deduction is calculated as follows:

23,000

(5,000) immediate deduction

18,000 / 180 months = $100 per month x 3 = 300 + 5,000 = $5,300