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Indicate the amount (if any) that Josh can deduct as an ordinary and necessary business deduction in each of the following situations. (Leave no answers blank. Enter zero if applicable.)

a. Josh borrowed $87,500 from First State Bank using his business assets as collateral. He used the money to buy City of Blanksville bonds. Over the course of a year, Josh paid interest of $8,800 on the borrowed funds, but he received $7,000 of interest on the bonds.

c. This year Josh paid $18,700 to employ the mayor’s son in the business. Josh would typically pay an employee with these responsibilities about $16,700 but the mayor assured Josh that after his son was hired, some city business would be coming his way.

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Melissa operates a sole proprietorship. She recently paid $695 for round-trip airfare to San Francisco to attend a business conference for three days. Melissa also paid the following expenses: $500 fee to register for the conference, $320 per night for three nights’ lodging, $150 for meals, and $610 for cab fare. (Leave no answers blank. Enter zero if applicable. Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)

a. What amount of these costs can Melissa deduct as business expenses?

Answer 1

Part A

Deductible Amount = $0

Purchasing a piece of land is a capital expenditure and such expenditures are not deductible.

Part C

Deductible Amount = $16700

Of $18700, $16700 is reasonable amount for deduction, while $2000 is unreasonable amoumt for deduction.

Part 2

Airfare	695
Conference fees	500
Lodging charged (320*3)	960
Meals (150*50%)	75
Cab fare	610
Total deductible business expense	$2840

The main purpose for the trip is business.