George starts a business in 2012. He pays $7,700 for research, travel, and other costs before he opens his doors. He begins operations on December 31, 2012. What is the most he can deduct in 2012?
a. Incorrect. Even though the business did not start until late in the year, it is not prevented from electing to deduct some start-up costs.
b. Correct. The $5,000 limit applies to start-up costs incurred in 2012. Since the business started at the end of the year, the balance of the costs ($2,700) is amortized over 180 months.
c. Incorrect. If the $7,700 of costs had been incurred in 2011, they would have been fully deductible because of the $10,000 limit applicable for that year.
d. Incorrect. The $10,000 immediate deduction applied only to start-up costs in 2011, and, in any event, the actual costs were not $10,000.