Stan and Susan, two calendar year taxpayers, are starting a new business to manufacture and sell digital circuits. They intend to incorporate the business with $600,000 of their own capital and $2 million of equity capital obtained from other investors. The company expects to incur organizational and start-up expenditures of $100,000 in the first year. Inventories are a material income-producing factor. The company also expects to incur losses of $500,000 in the first two years of operations and substantial research and development expenses during the first three years. The company expects to break even in the third year and be profitable at the end of the fourth year, even though the nature of the digital circuit business will require continual research and development activities.

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Stan and Susan may also elect to deduct up to __________($500,$5000,$50000) each and amortize the balance of organizational expenditures and/or startup expenditures. An election _______(would be, would not be) a good idea, because the election cannot be made retroactively if, upon audit, the IRS reclassifies deducted expenses as organizational expenditures. They must also determine what method they will use to write off their research and development expenses. They can choose to ______________ ( "expense them in the year incurred or defer and amortize them over 60 or more months.", "use the cash or accrual write off method.", "use the LIFO, FIFO or LCM write off method.")