Question

Vella owns and operates an illegal gambling establishment. In connection with this activity, he has the following expenses during the year:

Rent $25,500 Bribes 38,250 Travel expenses 2,550 Utilities 15,300 Wages 371,750 Payroll taxes 12,750 Property insurance 1,275 Illegal kickbacks 22,950

Vella's total deductible expenses for tax purposes are $--------------------

Answer 1

Answer:

Income from illegal business is included in gross income and businesses expenses, ordinary and necessary can be deducted.

Rent	$25,500
Bribes	-
Travel expenses	2,550
Utilities	15,300
Wages	371,750
Payroll taxes	12,750
Property insurance	1,275
Illegal kickbacks	-
Vella's total deductible expenses for tax purposes are	$403,625

Note:

Deductible expenses are determined only if the expenses are used for business purposes. Those expenses are allowed to get tax benefits. If the expenses do not have business purpose, those expenses are not eligible for deductions.