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16 June, 03:44

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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  1. 16 June, 04:35
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    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.
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