Discuss Whether the Following Expenditures Meet the Ordinary, Necessary, and Reasonable

question 17

Essay

Discuss whether the following expenditures meet the ordinary, necessary, and reasonable requirements for deductibility. Mortimer owns a shoe store. Every August Mortimer has a "Back-to-School" sale. To
a. promote that event Mortimer spends $2,000 on newspaper and radio advertising. Generally, this event generates about $85,000 in sales. These sales revenues are about twice the level
of sales in other months.
Wilma bought a small manufacturing business that had been declared bankrupt. To retain
b. the current sales force, she pays some of the obligations owed to these people by the former owners. Wilma has no legal obligation to pay these debts.
Ned owns a large sporting goods store. Nick's 17-year-old son, Tony, works in the store
c. when time permits. Nick pays Tony $10 per hour because he has worked in the store several years. Other high school age individuals also work at the store and perform
functions requiring less experience than Tony. They are paid $8 per hour.
Art is a self-employed CPA. Last month he attended an AICPA Continuing Education
d. course that cost him $750. In addition to the course registration fee, Art incurred $800 in travel expenses to attend the course.
Elvira is a stockholder in over 100 different corporations. However, she does not own more than 10 shares of stock in any one company. She enjoys attending annual stockholder
e. meetings and often gives her "two cents worth" about issues affecting the companies' operations. In the past year Elvira spent $7,540 to attend the stockholder meetings to help protect her investments.

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Definitions:

Income Subsidy

An income subsidy is a government-provided financial assistance program intended to boost an individual's income to a level sufficient for meeting basic living standards.

Negative Income Tax

A program where the government provides additional income to those who earn under a specific threshold, rather than collecting taxes from them.

Tax Liability

Tax liability is the total amount of tax that an individual or organization is legally obligated to pay to a taxing authority based on earnings, property ownership, or other taxable conditions.

Earned Income Tax Credit

A tax credit in the United States designed to benefit individuals and families with low to moderate incomes, effectively reducing the amount of tax owed and possibly resulting in a refund.