Question

Ajax Inc. was formed on April 25 and elected a calendar year for tax purposes. Ajax paid $11,200 to the attorney who drew up the articles of incorporation and $5,100 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 $16,300 organizational costs on its first tax return

Answer 1

Answer: $5,377

Explanation:

$5,000 can be deducted from Ajax inc. $16,300 organizational costs and must capitalize the $11,300 which remains.

The capitalized cost can be amortized for a period of 180 months at a rate of $62.78 per month.

If Ajax inc. decides to follow this direction, Ajax can also deduct $377 amortization this sums up to

(6 months × $62.78).

Ajax inc. can save $377 more by deducting $5,377 organizational cost from its first tax return.