Asked by J
Jermaine is a sole proprietor. He operates a sporting goods store. His gross revenue is $103,000 for Tax Year 2024. Jermaine would like to fully deduct the expenses listed. Which of the following expenses would NOT meet the definition of "ordinary and necessary expense"?
$175 per month for a mobile phone used exclusively for the business.
$1,900 for advertising costs.
$3,500 for gifts given to five customers. Each gift is valued at $500.
$37,000 in wage expenses paid to three part-time employees.
All Answers 1
Answered by
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The gifts.
Business gifts are limited to a $25 deduction per recipient per year (IRC §274(b)). So only $25 × 5 = $125 is deductible; the rest of the gift cost is not an “ordinary and necessary” deductible business expense. (If each gift is $500, total = $2,500, deductible = $125, disallowed = $2,375. If the listed $3,500 total is correct, deductible is still $125, disallowed = $3,375.)
By contrast: the $175/month business-only mobile phone, $1,900 advertising, and reasonable wages paid to employees are generally ordinary and necessary and deductible (subject to the usual substantiation and reasonableness rules).
Business gifts are limited to a $25 deduction per recipient per year (IRC §274(b)). So only $25 × 5 = $125 is deductible; the rest of the gift cost is not an “ordinary and necessary” deductible business expense. (If each gift is $500, total = $2,500, deductible = $125, disallowed = $2,375. If the listed $3,500 total is correct, deductible is still $125, disallowed = $3,375.)
By contrast: the $175/month business-only mobile phone, $1,900 advertising, and reasonable wages paid to employees are generally ordinary and necessary and deductible (subject to the usual substantiation and reasonableness rules).
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