If a Taxpayer Operated an Illegal Business (Not Drug Trafficking)

question 12

Essay

If a taxpayer operated an illegal business (not drug trafficking), what expenses can be deducted and what expenses are disallowed?

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Definitions:

Material Inventories

Stocks of raw materials, work-in-progress, and finished goods that are held for use in production or sale in the future.

Direct Materials Purchases

The total cost of raw materials bought that are directly incorporated into a finished product.

Ending Direct Materials

Ending Direct Materials refers to the value of raw materials that are still available for use in production at the end of an accounting period.

Required Production

Required production is the quantity of goods a company needs to produce in a given period to meet customer demand and maintain inventory levels.