Candlewood LLC started business on September 1, and it adopted a calendar tax year. During the year, Candlewood incurred $6,500 in legal fees for drafting the LLC's operating agreement and $3,000 in accounting fees for tax advice of an organizational nature, for a total of $9,500 of organizational costs. Candlewood also incurred $30,000 of preopening advertising expenses and $24,500 of salaries and training costs for new employees before opening for business, for a total of $54,500 of startup costs. The LLC wants to take the largest deduction available for these costs. How much can Candlewood deduct as organizational expenses? As startup expenses?

Question

Rosemary Conley

Business

11 August, 13:39

Candlewood LLC started business on September 1, and it adopted a calendar tax year. During the year, Candlewood incurred $6,500 in legal fees for drafting the LLC's operating agreement and $3,000 in accounting fees for tax advice of an organizational nature, for a total of $9,500 of organizational costs. Candlewood also incurred $30,000 of preopening advertising expenses and $24,500 of salaries and training costs for new employees before opening for business, for a total of $54,500 of startup costs. The LLC wants to take the largest deduction available for these costs. How much can Candlewood deduct as organizational expenses? As startup expenses?

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Jadiel · Answer 1

Organization expenses $5,100

Startup expenses $1,700

Explanation:

Calculation of organisation expenses and startup expenses

Particulars Calculations Amount

Actual expense $54,500

Reduced for startup upto $50,000 $5,000

1. LLC may deduct ($9,500 - $5,000) * 4/180 $100

Organization expenses ($5000 + $100) $5,100

2. Deduction for startup ($5,000 - $4,500) $500

Write off during the year $54,000*4/180 $1,200

Startup expenses $1,700

NB: Startup expenses are all expenses incurred for the start-up of the business are known as the startup expense which is related to the existing expense of business and will be approved after the firm.