Organizational expenditures include the direct costs of creating the corporation, chargeable to a capital account, and could be amortized over the life of the corporation if the corporation had a fixed life. Examples of organizational expenditures include expenses to obtain the corporate charter, fees paid to the state of incorporation, and expenses of temporary directors. Organizational costs must be distinguished from start-up and investigation costs (Publication 542).

Deductions for business gifts, whether made directly or indirectly, are limited to $25 per recipient per year. Since Jennifer gave five gifts to five employees, she is allowed to deduct $25 per recipient, or $125.

Publication 535 states, “A business bad debt is a loss from the worthlessness of a debt that was either

1. Created or acquired in your trade or business, or
2. Closely related to your trade or business when it became partly or totally worthless.

A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. . . . If you make a loan to a client, supplier, employee, or distributor for a business reason and it becomes worthless, you have a business bad debt.” The loans to both partnerships improved Mary’s business, so they are deductible. However, Mary’s loan to Sarah is not deductible because it was made for personal reasons instead of business reasons.

For start-up expenses incurred, taxpayers are allowed to deduct up to $5,000 of start-up and $5,000 of organizational expenditures in the taxable year in which the business begins. Start-up and organization expenses that are not deducted must be capitalized and amortized over 180 months on a straight-line basis. Thus, the minimum amortization period is 180 months.

Organizational expenditures include those that are incidental to the creation of a corporation, chargeable to a capital account, and amortizable over a limited life if they are expended incident to the creation of a corporation with such a life. Examples of organizational expenditures include expenses to obtain the corporate charter, fees paid to the state of incorporation, and expenses of temporary directors. Organization costs must be distinguished from start-up and investigation costs.

The expenses of a meal include amounts spent on food and tips relating to the meal. The amount allowable as a deduction for a business meal expense is 100% of the actual expense for food or beverages provided by a restaurant after December 31, 2020, and before January 1, 2023. If the business meal is not provided by a restaurant, it is only 50% deductible. The deduction for related expenses, such as taxes, tips, and parking fees, follows the deduction for the meal. Transportation expenses to and from a business meal are 100% deductible. No deduction is permitted for the dues. Therefore, the allowable deduction is $1,350 ($1,000 + $200 + $150).

The cost of a meal for a customer is considered a deductible business expense because customers fall under the business associate requirement, and the taxpayer was present at the meal. The expenditures qualify for deduction at the rate of 50% (100% if provided by a restaurant) of the cost.

For costs incurred, the taxpayer may elect to deduct up to $5,000 in organizational expenses. The remainder of the expenses are allowed as a deduction ratably over a 180-month period. A taxpayer is deemed to have made the election. All of the expenses listed qualify as organizational expenses except for the $500 of costs associated with transferring assets to the partnership. Those costs would be added to the basis of the assets. Thus, the maximum dollar amount that can be elected to amortize as organizational costs is $3,750 ($2,500 attorney’s fees + $250 fees for filing partnership agreement + $1,000 CPA fees).

Section 248 allows a corporation to elect to amortize its organizational expenditures over at least 180 months, beginning with the month in which the corporation starts business. A taxpayer is deemed to have made the election. Therefore, Holover Corporation may deduct $4,000 ($60,000 × 12/180 months) of organizational expense in its second year.

For a business meal to be deductible, the meal must

1. Be an ordinary and necessary expense;
2. Not be a lavish or extravagant expense;
3. Be attended by the taxpayer or an employee of the taxpayer;
4. Be provided to a current or potential business customer, client, consultant, or similar business contact; and
5. ABe separately stated from any nondeductible entertainment expense or purchased separately from the entertainment.

Organizational expenditures include those that are incidental to the creation of a corporation, chargeable to a capital account, and amortizable over a limited life if they are expended to the creation of a corporation with such a life. Examples of organizational expenditures include expenses to obtain the corporate charter, fees paid to the state of incorporation, expenses of temporary directors, and organizational meetings. Expenses relating to issuing the corporation’s stock are not amortizable expenses. Examples of such expenses include commissions for the sale of stock, related professional fees, printing costs for the stock, and costs for listing the stock on an exchange.

A corporation may elect to amortize its organizational expenses over at least 180 months starting with the month in which it begins business. Organizational expenditures are those incurred incidental to the formation of the corporation. Specifically excluded are expenditures connected with issuing or selling stock and with transferring assets to the corporation. Here only the legal fees to obtain a corporate charter are organizational costs and are amortized for a half year. The annual amortization is $3,000 [$45,000 × (12/180)]. The amortization expense for 2021 is only for 6 months (July – December) equaling $1,500 ($3,000 annually × 50%). In addition to the current year amortization, the corporation may deduct $5,000 in the tax year in which the corporation begins business.

There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters.

Section 195 (as amended by the American Jobs Creation Act of 2004) allows a taxpayer to elect to expense up to $5,000 of start-up costs for the tax year in which the business begins. Start-up expenditures are those paid or incurred in connection with investigating the creation or acquisition of an active trade or business, or with creating an active trade or business, and which, if paid or incurred in connection with the expansion of an existing business, would be allowable as a deduction in the year paid or incurred. Expenditures include (1) research of one’s product and the market for it, (2) accounting fees, (3) the training of employees, and (4) the securing of suppliers. The leather does not qualify as a start-up expenditure. Sally has $5,800 of start-up costs eligible for deduction; however, the deduction is limited to $5,000 plus the excess amortized and deducted for 3 months of the current year. Thus, Sally is entitled to expense $5,013 of her start-up costs.

Deductions for business gifts, whether made directly or indirectly, are limited to $25 per recipient per year. However, items clearly of an advertising nature, such as clipboards with the company name, that cost $4 or less do not figure in the $25 limitation. The clipboards costing $3 are fully deductible. The 50 bottles of wine are deductible up to $25 each, for a total amount of $1,250 (50 bottles at $25 each). Thus, the total amount of deductible business gifts is $1,550 ($300 + $1,250).

The combined QBID allowed amount is the sum of the amount for each qualified trade or business carried on by the taxpayer. Because Robin and Monica’s income is less than $329,800, the W-2 wages/qualified property limit does not apply. Thus, their QBID allowed amount for the sole proprietorship is 20% of QBI, $10,000 ($50,000 × 20%), and their QBID allowed amount for the S corporation is 20% of QBI, $15,000 ($75,000 × 20%). Therefore, the combined qualified business income deduction is $25,000 ($10,000 + $15,000).

An employee is any person who is hired by another person or business for a wage or fixed payment in exchange for personal services and who does not provide these services as part of an independent business. Additional characteristics of employment are determined on a case-by-case basis. Thus, weekly payment is the best indicator that Lee is an employee.

For a taxpayer to deduct expenses for the business use of his or her home under Sec. 280A, the taxpayer must use part of the home exclusively and regularly (1) as the principal place of business for the trade or business; (2) as a place to meet or deal with patients, clients, or customers in the normal course of the trade or business; or (3) in connection with the trade or business, if a separate structure is used that is not attached to the home. Since Travel is using a separate structure not attached to his home, regularly and exclusively, in connection with his business, he may deduct expenses allocable to the business use of his home.

A taxpayer may deduct ordinary and necessary expenses incurred when traveling away from home on business. A business deduction is not allowed for personal expenses. Bart must divide the total travel expenses between the business related expenses and personal expenses. He may only deduct as a business expense the business related travel expenses. Therefore, Bart may deduct $800 ($950 – $100 – $50) of the travel expenses excluding meals as a business expense.

Deductions for business gifts, whether made directly or indirectly, are limited to $25 per recipient per year. However, items clearly of an advertising nature, such as pens embossed with the company name that cost $4 or less, do not figure in the $25 limitation. Since none of the employees of the receiving companies were to receive more than one gift, each gift given to each company employee is deductible up to $25. The pens costing $4 each are completely deductible. The 25 bottles of wine are deductible up to $25 each, or an amount of $625 ($25 bottles at $25 each). The wrapping is completely deductible because incidental costs such as gift wrapping, mailing, and delivery of gifts and certain imprinted gift items costing $4 or less are excluded. The floral arrangements are also fully deductible. The total amount of deductible business gifts is $1,250 [$200 + $625 (25 bottles at $25 each) + $50 + $375].

Employers may deduct up to $400 in employee achievement awards as part of a nonqualified plan. The total limit is $1,600 for qualified plans. However, the award plan is not qualified since the average award is $717 [($250 + $1,500 +$400) ÷ 3], which exceeds the $400 limit. Therefore, the qualified plan deductible amount is $0. However, the employer may still take a $400 unqualified plan deduction.

The QBI deduction is available to noncorporate taxpayers who have qualified business income from qualified pass-through entities. Qualified pass-through entities include sole proprietorships, S corporations, partnerships, trusts, and estates.

A premium paid for insurance against losses from fire, accident, storm, theft, or other casualty is deductible if it is an ordinary and necessary expense of a business. When an insurance premium is paid in advance for more than 1 year, only a pro rata portion of the premium is deductible for each year, regardless of the taxpayer’s method of accounting. A portion of the premium paid in Year 1 is deductible in Year 2. The deductible amount is $1,800 ($3,600 premium ÷ 2 years).

Because Hannah’s taxable income is less than the $164,900 threshold amount, none of the limitations imposed above the phase-in or upper thresholds apply. Thus, for this partnership, there is a deduction equal to 20% of qualified business income ($70,000), $14,000.

A deduction is allowed for ordinary and necessary traveling expenses incurred by a taxpayer while away from home in the conduct of a trade or business. The convention agenda does not have to deal specifically with the official duties and responsibilities of your position.

Under Sec. 248, a corporation may elect to amortize its organizational expenditures over 180 months, starting with the month in which the corporation begins business. Organizational expenses are incurred incidental to the creation of the corporation. Regulation 1.248-1(b)(3) specifically excludes expenditures connected with issuing or selling shares of stock such as commission expenses and printing costs. In addition to the current year amortization, the corporation may deduct $5,000 in the tax year in which the corporation begins business. Deuce Corporation’s current year deduction is

NOTE: A taxpayer is deemed to have made the election.

A corporation’s organizational expenditures may be amortized over any period of 180 months that the taxpayer selects, but the period must begin with the month in which the corporation begins business.

A taxpayer, partnership, or corporation may deduct $5,000 of start-up costs of a business paid or incurred in the tax year in which the active trade or business begins (Sec. 195). A partnership or corporation may deduct a further $5,000 of organizational expenditures incurred in the tax year in which the partnership or corporation begins business (Secs. 709 and 248). These organizational deductions are reduced dollar-for-dollar for amounts paid or incurred in excess of $50,000. Any remainder may be deducted ratably over a period of 180 months beginning with the month in which the active trade or business, partnership, or corporation begins. The allowable organizational expenditures consist of the $4,000 of legal fees and the $2,000 of accounting services. Taking an immediate deduction of $5,000 leaves an excess of $1,000 to be amortized over 180 months. The total amortization for the 6 months in which the partnership operated is thus $33 [$1,000 × (6 ÷ 180)].

Section 248 allows a corporation to elect to amortize its organizational expenses over at least 180 months, starting with the month in which it begins business. A taxpayer is deemed to have made the election. Organizational expenditures are those incurred incidental to the creation of the corporation. Regulation 1.248-1(b)(3) specifically excludes expenditures connected with issuing or selling stock and with transferring assets to the corporation. These costs affect paid-in capital of the corporation.