Question

Iris, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in Florida and wants to expand to other states. During 2019, she spends $14,000 to investigate TV rental stores in South Carolina and $9,000 to investigate TV rental stores in Georgia. She acquires the South Carolina operations but not the outlets in Georgia. As to these expenses, Iris should:
Select one:a. None of the above.b. Expense $9,000 for 2018 and capitalize $14,000.c. Expense $23,000 for 2018.d. Capitalize $14,000 and not deduct $9,000.e. Capitalize $23,000.

Answer 1

Answer:

C) Expense $23,000 for 2018.

Explanation:

Iris owns and operates TV rental outlets, so all the expenses she makes while investigating possible purchases of related businesses (other TV rental outlets) can be deducted from her income. This deductions can be made regardless of whether Iris ended up purchasing the new stores or not.