Personal Expense (LO. 6) Neal and Ned spend $25,000 on travel, surveys, and financial forecasts to investigate the possibility of opening a bagel shop in the city. Because their suburban bagel shop has been so successful, they would like to expand their operations. If they open a store, it would be operational for 6 months of the year. a. What is the proper treatment of their expenditures if they open a bagel shop in the city? Because they are investigating the expansion of an existing business, they may deduct the $25,000 as a current expense. The investigation is considered to be an ordinary and necessary business expense. Feedback Check My Work Items capitalized as start-up costs must be similar to expenses that would be deductible in expanding an existing business. b. What is the proper treatment of their expenditures if they decide not to open a bagel shop in the city? related to expanding the existing active business, which is an ordinary and The $25,000 is deductible even if they don't open a business in the new location. The expenses are necessary business activity. c. What are your responses if the circumstances are that they are investigating opening a computer store in the city and they operate a bagel shop in the suburbs? Do not round intermediate calculations. Round final amounts to the nearest dollar. If they open the computer store, they can deduct $ 5,000 and amortize the remaining $ 20,000 as start-up costs. Therefore, based on the information that a new business would be operational for 1/2 of this year, their deduction in the current year would be $ 2,500 X . If they do not open the computer store, the investigation expenses are nondeductible personal expenditures