Essential business deductions

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Reference no: EM133569

Question :

Show the amount (if any) that Josh will deduct as ordinary and essential business deductions in each of the subsequent situations.

a. Josh borrowed $50,000 from the First State Bank by his business assets as collateral. He used the money to purchase City of Blanksville bonds. Over the course of a year, Josh paid interest of $4,200 on the borrowed funds, but he gets $3,500 of interest on the bonds.

b. Josh purchased a piece of land for $45,000 in order to obtain a location to expand his business. He also paid $3,200 to make a new driveway for access to the property.

c. This year Josh paid $15,000 to employ the mayor's son in the trade. Josh would classically pay an employee with these responsibilities about $10,000 but the mayor assured Josh that after his son was hired, some city business could be coming his way.

d. Josh paid his brother, a mechanic, $3,000 to install a robotic machine for Josh's business. The amount he paid to his brother is equivalent to what he would have paid to an unrelated party to do the same work. Once the installation was completed by his brother, Josh stated calibrating the machine for operation. Thus, by the end of the year, he had not started using the machine in his business.

Reference no: EM133569

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