Otto Operates a Bakery and Is on the Cash Method

question 4

Essay

Otto operates a bakery and is on the cash method and calendar year. This year, one of Otto's ovens caught fire and was partially destroyed. Otto bought it a few years ago for $20,000 and claimed depreciation of $12,000 up to the fire. Otto was charged $4,400 for repairs to the oven but the insurance company paid Otto $1,500 for the damage. What is Otto's casualty loss deduction?

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Definitions:

Gratuitous Agent

An individual who acts on behalf of someone else without expecting or receiving any compensation for their services.

Sales Agent

An individual or entity authorized to sell and promote products or services on behalf of a company, often earning a commission.

Independent Contractors

Individuals or entities hired to perform specific tasks or services for a company under a contract, without being considered employees of the company.

Principal's Right

This term involves the legal entitlements that a principal (the person for whom an agent acts) holds, especially in matters of agency law, such as the right to direct the agent and be accountable for the agent's acts.