Taxation Problem:

Up to Par Company, is a growing retail organization and operates a number of golf shops in Miami. During the current year, the company opened five retail stores. The new stores are designed to include indoor putting areas. The company is responsible for building out of walls and installing displays and fixtures for merchandise. The shops are housed in very large upscale shopping malls. The putting greens will use artificial grass turf. The company is expecting consolidated taxable income for the year of $150,000. The company holds long-term leases of ten years for each store and will amortize the leasehold costs over fifteen years.

Below is the breakdown of the total cost of each mall store:

Cost Category Amount Walls and interior build out $20,000

Putting green 10,000

Store displays and fixtures 45,000

Construction labor 50,000

Total Cost $125,000

Questions:

1. Determine from a tax perspective, if the costs are deductible expenses or capitalized costs. Explain. (10 points)

2. If capitalized cost, determine the asset classes, cost recovery periods for book and tax. Are they different? Explain. (15 points)

3. If the leasehold costs are depreciable, determine the first year depreciation amount for book and tax. Method used. Are the amounts different, why? (15 points)

4. What is Sec 179 Expensing election? Are the properties eligible? Explain. (15 points)

5. What is bonus depreciation? Are the properties eligible? Explain. (15 points)

6. If the properties qualify for both Section 179 and bonus depreciation, explain the criteria and order of application. (15 points)

Provide research to assistance the company in maximizing the best tax treatments available.

Thank you.