Organizational Costs Deduction for Ajax Inc.
What are the organizational costs incurred by Ajax Inc.?
Ajax Inc. paid $11,800 to the attorney and $5,700 to the CPA.
When did Ajax Inc. begin its business operations?
Ajax Inc. began business operations on July 15.
How much can Ajax Inc. deduct as organizational costs on its first tax return?
Options:
- $5416.64
- $17,500
- $11,800
- $5,700
Answer:
$5416.64
Ajax Inc. incurred organizational costs totaling $17,500 when forming the company. These costs included $11,800 paid to the attorney for drawing up the articles of incorporation and $5,700 paid to the CPA for advising the corporation on accounting and tax implications.
Since Ajax Inc. elected a calendar year for tax purposes and began its business operations on July 15, the company can deduct $5416.64 as organizational costs on its first tax return. This deduction is calculated based on the information provided and the IRS guidelines for deducting organizational costs.
The deduction amount of $5416.64 is determined by first deducting $5000 from the total organizational costs of $17,500. The remaining $12,500 is then divided by 180 days (6 months) to calculate the monthly amortization cost of $69.44. Multiplying this monthly cost by 6 months results in a total deduction of $416.64. Adding this to the initial deductible amount of $5000 gives the final deductible amount of $5416.64.