5. Which of the following ng expenditures is most likely to be deductible for a

Question

5. Which of the following ng expenditures is most likely to be deductible for a law firm? a. A fine for a disrupting a court proceeding b. A tax underpayment penalty C. An arm's length payment to a related party for serving papers for clients d. A payment to a foreign official to expedite an application for citizenship e. An "under the table" payment to a government representative to obtain a specific judge for a trial hearing 6. The Amazing Zinn operates a sole proprietorship as a magician, and this year he incurred the following expenses in his magician shows. What is the total deductible amount of these expenditures? $500 dinner with a film producer where no business was discussed $150 lunch with his lovely assistant Bambi where no business was discussed $200 business dinner with a client but Zinn did not keep any records $300 tickets to the Cirque du Soleil with a client following a business meeting a. $150 b. $250 C. $300 d. $450 e. $500 7. During 2017, Lori (age 12) received $3,200 from a corporate bond. She also received $700 from a savings account established for her by her parents. Lori's parents are in the 35% tax bracket. Lori lives with her parents and she is their dependent. What is the amount that will be taxed at Lori's parent's tax rate? a. $0 b. $1,800 c. $3,800 d. $3,200 e. $2,800

Explanation / Answer

5.

Answer: c

By the phrase “arm’s length” means the transaction is bona-fide, and there is no pressure whatsoever regarding such happening. The only motive of such transaction is self-interest of conducting the business. The amount of such payment is deductible.

Other options are not correct:

a)Any sort of fine doesn’t imply fair way of business; therefore, this is not deductible.

b) Paying penalty is a punishment; therefore, there is no question of getting deduction.

d) This is not a business activity, rather it is a personal matter; therefore, should not be deductible.

e) Such payment is a crime; therefore, should not be asked for a deduction.

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