Kitty Runs a Brothel (Illegal Under State Law) and Has

question 18

Essay

Kitty runs a brothel (illegal under state law) and has the following items of income and expense.What is the amount that she must include in taxable income from her operation? $$\begin{array} { l l r } \text { Income } & & \$ 200,000 \\\text { Expenses: } & & \\& \text { Rent } & 8,000 \\& \text { Utilities } & 2,000 \\& \text { Bribes to police } & 10,000 \\& \text { Office supplies } & 5,000 \\& \text { Legal fees } & 20,000 \\& \text { Depreciation } & 14,000 \\& \text { Illegal kickbacks } & 15,000\end{array}$$

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Definitions:

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment’s cost.

Business Executives

Individuals who hold senior managerial positions within a company, responsible for strategic decision-making and leading the organization.

Profit

The financial gain realized when the revenue from a business activity exceeds the costs, expenses, and taxes needed to sustain the activity.

Company

An entity formed to engage in a business activity, ranging from a sole proprietorship to a large corporation.