Question

Indicate the amount (if any) that Josh can deduct as an ordinary and necessary business deduction in each of the following situations. (Leave no answers blank. Enter zero if applicable.)

b. Josh purchased a piece of land for $81,500 in order to get a location to expand his business. He also paid $13,100 to construct a new driveway for access to the property.

Deductible Amount:

c. This year Josh paid $17,400 to employ the mayor’s son in the business. Josh would typically pay an employee with these responsibilities about $12,100 but the mayor assured Josh that after his son was hired, some city business would be coming his way.

Deductible Amount:

d. Josh paid his brother, a mechanic, $4,300 to install a robotic machine for Josh’s business. The amount he paid to his brother is comparable to what he would have paid to an unrelated party to do the same work. Once the installation was completed by his brother, Josh began calibrating the machine for operation. However, by the end of the year, he had not started using the machine in his business.

Deductible Amount:

Answer 1

B.$0. Capital expenditures are not deductible.

C.$12,100 deductible. The remaining $5300 is either unreasonable in amount or against public policy (as a bribe).

D.$0. The amount paid to install a machine is capitalised because the cost benefits the useful life of machine.