Question

1. Christopher is a cash-method, calendar-year taxpayer, and he made the following cash payments related to his business this year. Next to each item, indicate the amount that would be deductible on his current year’s tax return.
   1. $800 of interest on a short-term loan that was paid off before the end of the year. Half of the loan proceeds were used to invest in municipal bonds

______________

2. $300 fine for speeding while traveling to a client meeting

______________

3. $1,500 for office supplies. He used half the supplies this year and will use the remaining half by February of next year

______________

4. $2,400 for an insurance policy effective for three years beginning this April 1.

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Answer 1

Answer -

	Particulars	Explanation	Deductible amount ($)
a.	$800 of interest on a short-term loan that was paid off before the end of the year. Half of the loan proceeds were used to invest in municipal bonds.	Half of the interest ($800*50%) is not deductible since it was used to acquire non-taxable income.	400
b.	$300 fine for speeding while traveling to a client meeting.	It is not deductible because fines and penalties do not provide a tax break.	0
c.	$1500 for office supplies. He used half the supplies this year and will use the remaining half by February of next year.	All deductible since used within the next year.	1500
d.	$2400 for an insurance policy effective for three years beginning this April 1.	$2400 / 3 years	800