For Each of the Following Situations,determine Whether the Item Is

question 73

Essay

For each of the following situations,determine whether the item is deductible,how it would be deducted on the taxpayer's return (if there are alternatives possible,discuss the conditions that would determine the treatment)and any limitations,which might be placed on the deduction.
a. Allison is self-employed. She pays the following taxes during the current year:
$\begin{array} { l r } \text { State income tax } & \$ 1,200 \\ \text { Federal income tax } & 4,000 \\ \text { Sel f-employment tax } & 3,200 \\ \text { Property tax on residence } & 700 \\ \text { Tax on business equipment } & 200 \end{array}$
b. A customer who owed Leon $\$ 5,000$ declared bankruptcy last year. At that time, the customer's accountant estimated that only $40 \%$ of the customer's debts would be paid. In the current year, Leon receives $\$ 1,000$ from the bankruptcy court as final payment on the $ 5,000 $\mathrm { debt }$

---

Definitions:

Net Loss

The amount by which a company's expenses exceed its revenues during a specific period, indicating a financial loss.

Reacquired

Refers to the act of buying back previously sold shares or assets by the company that issued or sold them initially.

Common Stock

A type of equity security that represents ownership in a corporation, carrying voting rights and potentially dividends.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually with fixed dividends and without voting rights.