Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does not acquire the restaurant but does purchase the bakery on November 1, 2019.Total investigation costs related to the restaurant $28,000Total investigation costs related to the bakery $51,000What is the maximum amount Stanford can deduct in 2019 for investigation expenses?

A taxpayer is not in the same business or similar to one being invested, then tax treatment is dependent on the fact whether a business is acquired or not. If the tax payer does not acquire business, all the investigation expenses will not be allowable as deduction.

Thus, Stanford doesn’t owns the restaurant, therefore the amount of $28,000 is not deductible.

If the tax payer acquires that business then the expenses will be capitalized as startup expenditure. It is an immediate deduction of $5,000 is allowable and any excess amount is amortized over a period of 180 months.

As, $51,000 is not deductible because it isn’t involve I direct trade. Moreover, acquisition of the bakery is done by him, the extreme deduction from $51,000 amount is $5,000.

Therefore, $5,000 is reduced because of those expenses which are in excess of 50000

51000 - 50000 = 1000  

5000 - 1000 = 4,000 amount will be deducted.

As, The remaining expenditures of 47000 (51000 - 4000) can be repaid over the period of 15 years / 180 months starts from the month when they start the business, which is November.

= $47,000 / 180 Months

= $261 per month.

= $261 x 2 months

= $522.

The total deduction is $4,522 ($4,000 + $522)

Therefore the maximum amount can deduct in 2019 for investigation expense is $4,522

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