Question

1.Melissa recently paid $600 for round-trip airfare to San Francisco to attend a business conference for three days. Melissa also paid the following expenses:
   $250 fee to register for the conference,
   $300 per night for three night’s lodging,
   $200 for meals, and
   $150 for cab fare.  

What amount of the travel costs can Melissa deduct as business expenses?

2.Kimberly is a self-employed taxpayer. She recently spent $1,000 for airfare to travel to Italy. On the trip, she spent 6 days on personal activities and 4 days on business activities. What amount of the airfare is deductible?

3. Kimberly is a self-employed taxpayer. She recently spent $1,000 for airfare to travel to Italy. On the trip, she spent 4 days on personal activities and 6 days on business activities. What amount of the airfare is deductible?

4.Renee operates a proprietorship selling collectibles over the web, and last year she purchased a building for $24 million for her business. This year, Renee’s proprietorship reported revenue of $86 million and incurred total expenses of $77.6 million. Her expenses included cost of goods sold of $48.5 million, sales commissions paid of $6.9 million, $9.5 million of interest paid on the building mortgage, and $12.7 million of depreciation. What is the maximum amount of business interest expense that Renee can deduct this year?

Answer 1

1. Amount of the travel costs can Melissa deduct as business expenses

Airfare=600

Fee to register conference =250

Night's lodging=900(300×3)

Meals=100(200×50%)

Cab fare=150

Therefore $2000 can deduct as business expenses.

2. In this case the amount of airfare deductible is $0 since the primary purpose of the trip appears to be personal.

3. In this case the amount of airfare deductible is $600(1000×6÷10) since the primary purpose of the trip appears to be business, she may deduct the portion of the airfare allocated to the business trip.

4. Income before tax =$ 86 million

Less. Total expenses =77.6million

Income after expenses $8.4 million

Add depreciation = $12.7million

Add net interest expense =$9.5million

Adjusted taxable income =$30.6 million

Interest (30.6×30%) =$9.18million

Thus, business interest expense that can deduct is $9.18million.