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.

---

Definitions:

Peer Monitoring

The process of observing peers' activities or performance, often in a professional or educational setting, to ensure standards are met and to provide feedback.

Informal

Characterizing interactions or activities that are casual, unstructured, and not governed by formal rules, often marked by a relaxed atmosphere.

Consultation Group

A gathering of professionals who come together to discuss, advise, and support one another on matters related to their field of expertise.

Malpractice Suits

Legal cases brought against professionals accused of failing to competently perform their duties, leading to harm to another person.