[startupcfo]

I’m looking at sim #36 and see there is startup vs. organization costs.

1. What’s the difference between the two?
2. In the fact pattern, the business opens on November 1st. When we amortize costs over 180 months, does that means we only get deductions for the last 2 months of the tax year?

AUD - 93
BEC - 87
FAR - 77
REG - 77

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Corporate finance leader

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[Paydirt123]

startupcfo I can't explain the difference between startup & organization costs, but I do know they qualify for separate $5,000 deductions and 15 year amortizations. With respect to the second question, yes, there is a $5,000 deduction and 180 month amortization, with only the two months getting deducted

AUD - 84
BEC - 80
FAR - 80
REG - 85

Took the long way, but I got there

[monikernc]

the article lists different costs for each type
https://www.journalofaccountancy.com/issues/2015/nov/startup-costs-book-vs-tax-treatment.html

AUD - 93
BEC - 82
FAR - 76
REG - 88

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FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
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[SkiBum1990]

There is something I'm missing in this SIM as well. If the total deduction for each type of cost is $5,000 (so $10,000 max if you have both, and their individual cost didnt exceed the $50,000 threshold), why isnt $5,000 the deduction amount in the answer? –Instead it says it is $36,000….butttt if the remaining costs are amortized over 180 months, why are they included in the deduction amount???? so confused! —the amounts amortized are in fact deductions?…but I thought the max was $5,000 for those costs under the threshold?? (sorry if this sounds confusing..)

Line 26: The other deduction is $29,000, which is the amount given in the introductory material. The start-up and organization costs were incurred in Year 4. Because the start-up costs of $60,000 exceed the $50,000 threshold amount, Tulinsky must amortize these costs over 180 months. The organization costs of $50,000, however, do not exceed the $50,000 threshold amount and thus $5,000 can be deducted in Year 4 with the remaining $45,000 being amortized over 180 months. Therefore, the deduction in Year 5 of $7,000 is computed as follows:

Start-up costs = ($60,000 ÷ 180 months) × 12 months = $4,000
Organization costs = (($50,000 – $5,000) ÷ 180 months) × 12 months = $3,000
Adding the $29,000 to this $7,000 results in a total for this line of $36,000.

B - 79
A - 68, 70 (UGH)
R - Oct
F - Nov

"The mind can only absorb as much as the seat can take"

"The mind can only absorb as much as the seat can take"

B - 79
A - 68, __ (got bumped from Aug 4 release to Aug 23-THANKS AICPA)
R - Oct
F - Nov (HA! 1 month to study working full-time; love NTS rules)

[Anonymous]

This seems like one of those subjects the CFO of a startup should know like the back of their hand.

[SkiBum1990]

so costs that are amortized are apart of deductions? This has me so confused… thinking $5,000 is the max deduction you can take if the expenses arent above $50,000. If above, amortize over 180 months.

EDIT: This SIM was so vaguely worded… OMG— I see whats going on now lol NEVERMIND

B - 79
A - 68, 70 (UGH)
R - Oct
F - Nov

"The mind can only absorb as much as the seat can take"

"The mind can only absorb as much as the seat can take"

B - 79
A - 68, __ (got bumped from Aug 4 release to Aug 23-THANKS AICPA)
R - Oct
F - Nov (HA! 1 month to study working full-time; love NTS rules)

[So FAR So Good]

I'm not sure if I'm completely right, but I'll write out my understanding below. I could use a little clarity on the matter as well, but figure having some examples out there can help in the discussion.

First, think of startup costs and organizational expenses separately. They each have their own $5,000 deductible and $50,000 threshold. The examples below apply to EITHER, not both combined. Becker doesn't specify what the difference is, but it seems clear that they should be treated separately.

If you have less than $50,000 in expenses, deduct the first $5,000 and then amortize the rest of it over a 15 year (180 month) period starting in the first month of the business' operations. Example: if your business launches on January 1st and you have $41,000 in organizational expenses, the deduction is $7,400 ($5,000 off the top, then take the remaining $36,000 and amortize over 15 years, which means an additional $2,400 in year 1).

If you have over $50,000 in expenses, the amount over $50,000 reduces the up front deductible of $5,000, then you amortize the rest over the 15 year period. Example: if your business launches on January 1st and you have $53,000 in organizational expenses, the deduction is $5,200 (your up front deduction is limited to $2,000, then you amortize the remaining $48,000 over 15 years, which means an additional $3,200 in year 1).

AUD - 91
BEC - 85
FAR - 91
REG - 86

.

F - 91 (6/5/2016)
A - 7/30/2016
R - 10/8/2016
B - 12/10/2016

[HoosierCPA]

It's funny, I was just posting this same question in the REG study group. I have the same question as @skibum –if the $5K deduction is allowed for expenses under $50k then why in the answer is it not showing up on line 26?

Also, @so far so good I cannot make sense of your comment…

“If you have over $50,000 in expenses, the amount over $50,000 reduces the up front deductible of $5,000, then you amortize the rest over the 15 year period. Example: if your business launches on January 1st and you have $53,000 in organizational expenses, the deduction is $5,200 (your up front deduction is limited to $2,000, then you amortize the remaining $48,000 over 15 years, which means an additional $3,200 in year 1).”

Can you explain that in another way or maybe someone else can?

AUD - 80
BEC - 82
FAR - 78
REG - 89

...

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[Anonymous]

Start up costs, get to expense $5000 immediately
Organizational costs (separately) get to expense an additional 5,000 immediately.

The caveat is, if startup costs exceed 50,000 the 5,000 deduction is reduced on a dollar for dollar basis until it is phased out completely at $55,000.

So assuming the total costs are under 50,000, you can expense $5000 PLUS (the balance/180 months)* the number of months remaining in that year. Amortization starts in the month the operation starts. Similar to partial year depreciation

Does that make sense?

[HoosierCPA]

@cessnapilot30 ok so using the $53,000 cost as an example. Everything is phased out dollar for dollar above $50K.

So $3K of the $5K is phased out. So $2K can be deducted immediately ($3K phased out)

Option 1:
$2K is reduced from the basis so the $53,000 is not $51,000 over 180 months.

So assuming you can amortize over an entire year the $51K would be $3,400 for 12 months amortized.

This allows a year 1 deduction of $5,400 ($2k immediate deduction + $3.4K amortized amount)???

Option 2:
Or what looks to be what So Far so Good is saying…the $2K gets deducted from $50K (max allowable amount) rather then the $53K…which brings the amortized amount to $3,200 and a total year 1 deduction of $5,200?

AUD - 80
BEC - 82
FAR - 78
REG - 89

...

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[ninjalulu]

Question: What is the difference between an organizational expenditure and a start-up
expenditure?
Solution: Organizational expenditures are outlays made in forming a corporation, such
as fees paid to the state of incorporation for the corporate chapter and fees paid to an attorney
to draft the documents needed to form the corporation. Start-up expenditures are
outlays that otherwise would be deductible as ordinary and necessary business expenses
but that are capitalized because they were incurred prior to the start of the corporation’s
business activities.
A corporation may elect to deduct the first $5,000 of organizational expenditures and
the first $5,000 of start-up expenditures. The corporation can amortize the remainder of
each set of expenditures over 180 months. Like a corporation, a partnership can deduct
and amortize its organizational and start-up expenditures. A sole proprietorship may incur
start-up expenditures, but sole proprietorships do not incur organizational expenditures.

[Author]

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