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    Expensing organization costs vs capitalizing

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    What is the justification for expensing organization costs versus capitalizing them? What would be some arguments against expensing organization costs?

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    Solution Preview

    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 ...

    Solution Summary

    The solution presents three reasons to expense and three reasons not. All the reasons are developed for ease of understanding.