Award: 10.00 points
Ronald is a cash method taxpayer who made the following expenditures this year. Which
expenditure is completely deductible in this period as a business expense?
$4,000 for rent on his oﬃce that covers the next 24 months.
$3,000 for a new watch for the mayor to keep "good relations" with city hall.
$2,500 for professional hockey tickets distributed to a customer to generate "goodwill" for
$55 to collect an account receivable from a customer who has failed to pay for services
None of the choices are completely deductible.
The rent is prepaid and must be amortized, the watch is a bribe, the gift is too expensive for
deduction, and although a cash method taxpayer cannot deduct bad debts, amounts paid to collect
those receivables are fully deductible as an ordinary and necessary business expense.
Diﬃculty: 2 Medium
Learning Objective: 01-02 Determine the
limits on deducting business expenses.