Tom operates an illegal drug-running operation and incurred the following expenses: Which of the above amounts reduces his taxable income?

A)$0.
B)$160,000.
C)$279,000.
D)$324,000.
E)None of the above.

Question

Tom operates an illegal drug-running operation and incurred the following expenses: Which of the above amounts reduces his taxable income?

A)$0. 
B)$160,000. 
C)$279,000. 
D)$324,000. 
E)None of the above.

Quizplus · Accepted Answer

Only the cost of goods sold reduces taxable income in a drug-running operation. Therefore, the amount that Tom paid for the drugs he sold (which is $160,000) would reduce his taxable income. The other expenses (such as rent, utilities, and bribes) are not deductible expenses in an illegal operation.

Tom Operates an Illegal Drug-Running Operation and Incurred the Following