Using the Tests for Deductibility Discussed in Chapter 5, Explain

question 84

Essay

Using the tests for deductibility discussed in Chapter 5, explain why the following expenses may not be fully deductible in the current year
a. Janet pays $900 in interest on debt she incurred to purchase municipal bonds. The bonds pay
$1,500 of interest in the current year.
Andrew owns a retail-clothing store. Andrew has the opportunity to obtain a franchise to
b. operate a discount sporting goods store. He spends $5,000 investigating the possibility of opening a sporting goods store in a neighboring town.
Jane owns a fitness center. She employs the star basketball player at Local University as an
c. aerobics instructor. Because of his reputation, she pays him $20 an hour. Jane pays her other aerobics instructors $10 an hour.
d. Alvin makes a vacation trip to Florida, and while there spends two days investigating the feasibility of opening up a new office of his optometry practice.

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Definitions:

Equilibrium Price

The market price at which the quantity of goods supplied equals the quantity demanded, leading to market stability.

Quantity Supplied

The supply of goods or services that vendors are prepared and capable of offering at an established price over a specified duration.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price in a specific time period.

Clear The Market

This is a term used in economics to describe a scenario where the quantity supplied matches the quantity demanded, meaning the market is in equilibrium and there are no surplus or shortage.