Arrow Inc: Business expenditures deductible or nondeductible
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Which of the following trade or business expenditures of Arrow Inc.
are deductible on its current year tax return? If an expenditure is
not deductible, explain why it is not a valid deduction
Expenditures
Salaries and wages to employees $400,000
Purchase of new office building $250,000
Payment of illegal parking fines of president $1,400
Payment of wedding expenses for President's
daughter's wedding $16,000
Entertainment, expenses related to company business $25,000
Interest on money borrowed to buy tax-exempt securities $9,000
Total Expenditures $700,400
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Solution Summary
The detailed solution explains whether each of the items are tax deductible including reasons why some of the expenses are not allowable.
Solution Preview
Salaries and wages of bona fide employees are always a deductible business expense.
Purchase of new office building is not a current deduction, but can be depreciated over the life of the building. Under MACRS, a commercial building uses a 39 year life. The current year depreciation is deductible. As to the amount of depreciation, there is a method that allows for buildings to be subdivided into component parts that may allow for certain parts to use a useful live of something less than 39 years. It is called a cost segregation study. Land, of course, is not deductible, and is segregated from the building.
Payment of illegal parking fines of the President is not deductible. The reasoning is that ...
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