To determine which expense would NOT meet the definition of "ordinary and necessary expense" for Harlow's sporting goods store, let's analyze each item:
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$180 per month for a mobile phone used exclusively for the business: This expense is ordinary and necessary, as having a mobile phone for business purposes is typical and required for conducting business.
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$1,700 for advertising costs: This expense is also ordinary and necessary, as businesses routinely incur advertising expenses to promote their products.
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$2,500 for gifts given to five customers. Each gift is valued at $500: Under IRS rules, the maximum deductible amount for business gifts to a single recipient is $25. Since each of Harlow's gifts is valued at $500, this expense exceeds the deductible limit and thus may not be fully deductible.
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$40,000 in wage expenses paid to three part-time employees: This expense is ordinary and necessary, as paying employees is a common and essential cost of running a business.
Based on this analysis, the expense that would NOT meet the definition of "ordinary and necessary expense" is:
$2,500 for gifts given to five customers. Each gift is valued at $500.