Tom operates an illegal drug-running operation and incurred the following expenses: $$\begin{array} { l r }
\text { Salaries } & \$ 75,000 \
\text { Illegal kickbacks } & 20,000 \
\text { Bribes to border guards } & 25,000 \
\text { Cost of goods sold } & 160,000 \
\text { Rent } & 8,000 \
\text { Interest } & 10,000 \
\text { Insurance on furniture and fixtures } & 6,000 \
\text { Utilities and telephone } & 20,000
\end{array}$$ Which of the following amounts reduces his taxable income?
A)$119,000.
B)$160,000.
C)$279,000.
D)$324,000.
E)None of these.

Question

Tom operates an illegal drug-running operation and incurred the following expenses: $$\begin{array} { l r } 
\text { Salaries } & \$ 75,000 \
\text { Illegal kickbacks } & 20,000 \
\text { Bribes to border guards } & 25,000 \
\text { Cost of goods sold } & 160,000 \
\text { Rent } & 8,000 \
\text { Interest } & 10,000 \
\text { Insurance on furniture and fixtures } & 6,000 \
\text { Utilities and telephone } & 20,000
\end{array}$$ Which of the following amounts reduces his taxable income?
A)$119,000.
B)$160,000.
C)$279,000.
D)$324,000.
E)None of these.

Quizplus · Accepted Answer

The cost of goods sold ($160,000) is the only expense that legitimately reduces taxable income, as it is directly related to the cost of acquiring or manufacturing the goods sold by the business, regardless of the legality of the operation. Other expenses like salaries, kickbacks, bribes, rent, interest, insurance, and utilities are not deductible in the context of illegal activities.

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