Using the Tests for Deductibility Discussed in Chapter 5, Explain

question 19

Essay

Using the tests for deductibility discussed in Chapter 5, explain why the following expenses are not deductible.
a.Mel is a sprint car racer. He does repair and maintenance on his cars in the garage at his home. After repairing the cars, he tests them on city streets. He received 15 citations (totaling $2,900) for speeding, running stop signs, and reckless driving.
b.Albert, a carpenter, pays his 10-year-old son $150 a week to empty waste cans in his work shop. Albert's son works each evening and two hours on Saturday morning.
c.Sharon contributes $25 to a local organization that is campaigning against a foreign trade bill. The legislation would damage Sharon's business.
d.Marline borrows $5,000 and pays $500 in interest. The loan is used to purchase bonds issued by the City of Lafayette School District.
e.Christine is the wife of a physician, and she is an experienced horseman. She has raised horses for ten years and occasionally shows them for prize money. She enjoys her horse activity but has never made a profit in any year. Her horses are appraised at $200,000.

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Definitions:

Taft-Hartley Act

A 1947 U.S. federal law that restricts the activities and power of labor unions, also known as the Labor Management Relations Act.

Landrum-Griffin Act

Federal law that primarily governs the internal operations of labor unions. It requires financial disclosures by unions, establishes penalties for financial abuses by union officials, and includes “Labor’s Bill of Rights” to protect employees from their own unions.

Labor Unions

Organizations that represent the collective interests of workers, negotiating wages, benefits, and working conditions with employers.

Secondary Boycott

An illegal labor action in which unionized employees who have a labor dispute with their employer boycott another company to force it to cease doing business with their employer.