Question

Jordan runs a garden and landscaping business. Jordan’s business is called “Gardens of Heaven”. In order to learn how Brazilians grow such beautiful gardens, Jordan flew to Rio de Janeiro, Brazil in 2019 and visited several gardens. During her trip, she visited with the gardeners and solicited advice regarding how to grow the best gardens. She also purchased some equipment that she could not find in the U.S. The cost of her trip was $3,500 and the cost of the equipment was $1,200

In addition, Jordan had the following items for 2019: $70,000 gross income from garden clients $20,000 of operating expenses and COGS (not including the expenses discussed above) 2,500 miles driven for business purposes

Can Jordan deduct the cost of her trip to Brazil, including the equipment? Why or why not? Please calculate (showing your work) Jordan’s adjusted gross income and her taxable income for the year. Assume she claims the standard deduction for a single filer. Be sure to explain any calculations.

Answer 1

Sol :

Jordan can deduct the cost of her trip because she incurred expenses which are related to her business.Equipment cost cannot be deducted as expenditure because it is capital in nature should be shown under assets.By purchasing equipment it has a benefit for forgoing years.So it should be capitalised and can take depreciation over the useful life of the asset.

Computation of Adjusted Gross Income & Taxable Income

Gross Income = $70000

Less :

Operating expenses & COGS = $20000

Cost of trip = $3500

Adjusted gross income =$46500

Less : Standard deduction = $12200

Taxable Income = $34300

Note : The standard deduction for single filers been increased to $12200 in 2019 from $12000 in 2018.