What is the justification for expensing organization costs versus capitalizing them? What would be some arguments against expensing organization costs?© BrainMass Inc. brainmass.com June 3, 2020, 9:34 pm ad1c9bdddf
When you say 'expense' versus 'capitalizing', that could mean two things. Organization costs are normally amortized but tax law provides a special Sec 197 to allow direct expensing of the first $5000 of costs incurred. I've attempted to differentiate in the solution to include both expensing and amortizing.
Reasons to expense organizational costs:
1. The costs may be so relatively small that the doctrine of materiality says to expense them directly.
2. Tax law allows expensing of the first $5000, and a ...
The solution presents three reasons to expense and three reasons not. All the reasons are developed for ease of understanding.