Angela, who is single, incurs circulation expenditures of $153,000 during 2017. She is deciding whether to deduct the entire $153,000 or to capitalize it and elect to deduct it over a three-year period.
Angela knows that she will be subject to the AMT for 2017 at both the 26% and 28% rates. Angela is in the 28% bracket for regular income tax purposes this year; she reports regular taxable income of $153,000 before considering the circulation expenses.
Angela expects to be in the 28% regular tax bracket in 2018 and 2019. Advise Angela on how to treat the expenditures in 2017. Take the time value of money into consideration when calculating the tax savings of one alternative over another. Use the tables in Appendix H for this purpose, and assume that the pertinent discount rate is 4%.