Using the Tests for Deductibility Discussed in Chapter 5, Explain

question 126

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.
b.Andrew owns a retail-clothing store. Andrew has the opportunity to obtain a franchise to operate a discount sporting goods store. He spends $5,000 investigating the possibility of opening a sporting goods store in a neighboring town.
c.Jane owns a fitness center. She employs the star basketball player at Local University as an 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:

Iron Deposits

Accumulations of iron in the body, which can indicate conditions such as hemochromatosis or be a result of repeated blood transfusions.

Excessive Appetite

An unusually strong desire or need to eat, which can be a symptom of various medical conditions or physiological states.

Foul-Smelling Stools

Excrement that has an unusually strong, bad odor, which may be an indicator of a digestive system disorder or infection.