Question

Candlewood LLC started business on August 1, and it adopted a calendar tax year. During the year, Candlewood incurred $10,950 in legal fees for drafting the LLC's operating agreement and $5,475 in accounting fees for tax advice of an organizational nature, for a total of $16,425 of organizational costs. Candlewood also incurred $22,000 of preopening advertising expenses and $31,000 of salaries and training costs for new employees before opening for business, for a total of $53,000 of startup costs. The LLC wants to take the largest deduction available for these costs. If required, round any division to six decimal places and use in subsequent computations. Round your final answers to the nearest dollar. How much can Candlewood deduct as organizational expenses

Answer 1

$5,317

Step-by-step explanation:

Calculation of the organizational expenses is as shown below.

Actual expense $53,000 - reduced startup $48,000 = $5,000

This means that Candlewood LLC may deduct

= ($16,425 - $5,000) × 5/180

= $11,425 × 5/180

= $317.4

Therefore, organizational expenses would be;

= $5,000 + $317.361111

= $5,317.361111

= $5,317. Approximated to the nearest dollar.

Candlewood LLC may deduct $5,317 as organizational expenses.