Answer:
a. The amount Henrietta can deduct in the current year for investigating the possibility of expanding the hotel chain a city in the Northeast is $67,000.
b. Amount she can deduct in the current year is $2,088.88.
Explanation:
a. Determine the amount Henrietta can deduct in the current year for investigating the possibility of expanding the hotel chain.
Since the primary business of Henrietta is the hotel business, all the expenses she incurred in investigating the possibility of expanding the chain into another city is deductible in the current year despite that she decides not to expand.
Therefore, the amount Henrietta can deduct in the current year for investigating the possibility of expanding the hotel chain a city in the Northeast is $67,000.
b. Determine the amount Henrietta can deduct in the current year for investigating opening a restaurant.
Since the primary business of Henrietta is not a restaurant business, the amount she can deduct in the current year can b determined as follows:
Of the$51,000, an amount of $4,000 [$5,000 − $1,000 (reduction for excess over $50,000)] can be immediately expensed.
The balance of $47,000 ($51,000 − $4,000) is amortized over a period of 180 months at the rate of $261.11 per month ($47,000 ÷ 180) starting from May. Therefore, we have:
Amount she can deduct in the current year = Amount deductible per month * Number of months between May 1 to December 31 = $261.11 * 8 = $2,088.88
