Question

What is the difference between a personal expense and a business expense that allows a taxpayer to deduct the expense? Cite an example and explain why the expense is deductible (use an Internal Revenue Code section to support your argument and cite same).

Answer 1

PART 1

Personal expense:
Personal or family expenses such as medical bills and mortgage interest payments or charitable donations And losses due to theft and vandalism etc.

Business Expense:
Expenses that directly related to business which is a legitimate business expense such as expenses on salaries, supplies advertisement etc.

PART 2

Personal Expense: Phone Expenses.
Section 262(a) of the Internal Revenue Code allows deduction of expenses related to Personal living and family.

Section 262(b) says (taking section mentioned above) any charge for local telephone service with respect to the 1st telephone line provided shall be treated as a personal expense.

Business Expense: Allowance for salaries.
Section 162(a)(1) Allows deduction for allowance for salaries and other compensation for services actually rendered.