In January of the current year, Don and Steve each invested $100,000 cash to form a corporation to conduct business as a retail golf equipment store. On January 5, they paid Bill, an attorney, to draft the corporate charter, file the necessary forms with the state, and write the bylaws. They leased a store building and began to acquire inventory, furniture, display equipment, and office equipment in February. They hired a sales staff and clerical personnel in March and conducted training sessions during the month. They had a successful opening on April 1, and sales increased steadily throughout the summer.

The weather turned cold in October, and all local golf courses closed by October 15, which resulted in a drastic decline in sales. Don and Steve expect business to be very good during the Christmas season and then to taper off significantly from January 1 through the end of February. The corporation accrued bonuses to Don and Steve on December 31, payable on April 15 of the following year. The corporation made timely estimated tax payments throughout the year. The corporation hired a bookkeeper in February, but he does not know much about taxation.

As their tax consultant, identify for Don and Steve the relevant tax issues by completing each item below.

Organizational expenditures and startup expenditures

For both types of expenditures, the corporation the first $ of qualifying expenditures and amortize the remaining balance over a period of . If they choose to forgo the expense, they would need to the corporations return.

Cost recovery

The corporation must choose a cost recovery method and decide whether to under .

Accounting method

An accounting method selected. The accrual method will be required for ; the would allow use of the for all items other than noted above.

Accounting year

The corporation has in selecting a fiscal or calendar year.

Related parties

If Don and Steve are family members (e.g., brothers) as defined under and the corporation selects the of accounting, the bonuses will not be deductible until the year of payment.

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