Julia operates a small business selling baseball cards and memorabilia. As part

Question

Julia operates a small business selling baseball cards and memorabilia. As part of that business, Julia frequently sells signed baseballs. In order to get a signature from Mike Trout (a famous baseball player), Julia attends a game in her hometown. Prior to the game, Julia gets Mr. Trout’s autograph and then stays to watch the game. It cost Julia $200 to attend the game. For the year, Julia has the following additional items of income and expenses:

$70,000 gross income from sales of memorabilia

$10,000 of operating expenses and COGS (not including the $200 discussed above)

$10,000 of medical expenses

$4,000 of expenses related to real estate investments she is holding for appreciation

$3,500 of mortgage interest on her residence

Can Julia deduct the $200 cost of attending the baseball game? Why or why not? Please calculate (showing your work) Julia’s adjusted gross income and her taxable income for the year.

Explanation / Answer

Julia can deduct the $200 cost of attending the baseball game as business expenses as she spent this money to get the autograph of Mike Trout which she will be using to sell her baseball for a better price.

Though, she got tthe autograph before th game but still she had to pay that money to get into the stadium.

Adjusted gross income = Gross income from sale of memorabilia - COGS - cost of attending the baseball game - Real estate investment expenses - mortgage interest on residence

= $70000 - 10000 - 200- 4000 - 3500

= $52300

Taxable income = Adjusted gross income - medical exppense allowed for deduction

= $52300 - 10% of adjusted gross income

= $52300 - $5230 = $47070

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