Question

Problem 9-32 (Algorithmic) (LO. 5)

During the current year, Paul, the vice president of a bank, made gifts in the following amounts:

To Sarah (Paul's personal assistant) at Christmas	$51
To Darryl (a key client)—$3 was for gift wrapping	36
To Darryl's wife (a homemaker) on her birthday	14
To Veronica (Paul's boss) at Christmas	25

In addition, on professional assistants' day, Paul takes Sarah to lunch at a cost of $85. Presuming that Paul has adequate substantiation and is not reimbursed, how much can he deduct?

Do not round intermediate computations. If required, round your final answer to the nearest cent.
$fill in the blank 1

Answer 1

ANSWER:

Before calculating the deduction available following factors are to be considered:

Gifts are subject to a deduction of $25 per done per year. However, incidental expenses incurred on packing mailing etc. are not included in the cost of gift while computing the limitation of $25

Gifts to employees/ superiors are not deductable. hence, gift made to v is not eligible for deduction.

Deduction available with respect to gift is $36(($25*2)+$3(cost of wrapping)).

The expenses incurred on lunch are subject to a 50% cutback. Therefore, the deductions available on lunch are 50%.

Hence,the deduction is $42.5($85*50%).

The total deductions available are $78.5($36+$42.5)