Task: Capitalization versus Expensing.
Joe carter owns 15 apartment buildings. During the year, Joe replaced the carpeting in many of the apartments because the costs associated with replacing the carpeting are relatively small in comparison with the gross rents, Joe is considering expensing the costs are repairs and maintenance.
- Discuss the key factors that should be considered when determining whether an item should be expensed.
- Speculate how Joe Carter arrived at his decision to expense the carpets replaced in the apartments.
- Explain whether or not you agree with his decision.
Business Expense or Start-Up Expense?
Mark works as a writer for a local newspaper. Ten years ago he wrote a book about gardening. The book was a moderate success, and he ended up making about $15,000 from sales of the book. During the current year, mark had $20,000 of expenses in correction with writing a book dealing with soccer. The expenses were for travel, meals, lodging, and research. Mark is considering expensing these items in the current year as trade and business expenses rather than capitalizing and amortizing them as startup expenses.
- Evaluate the appropriateness of Mark'f s plan.
- Discuss any future consequences to Mark related to the tax treatment of the expenses.