Tom operates an illegal drug-running operation and incurred the following expenses: $$\begin{array} { l r }
\text { Salaries } & \$ 75,000 \
\text { Ilegal kickbacks } & 20,000 \
\text { Bribes to border guards } & 25,000 \
\text { Cost of goods sold } & 160,000 \
\text { Rent } & 8,000 \
\text { Interest } & 10,000 \
\text { Insurance on furniture and fixtures } & 6,000 \
\text { Utilities and telephone } & 20,000
\end{array}$$ 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: $$\begin{array} { l r } 
\text { Salaries } & \$ 75,000 \
\text { Ilegal kickbacks } & 20,000 \
\text { Bribes to border guards } & 25,000 \
\text { Cost of goods sold } & 160,000 \
\text { Rent } & 8,000 \
\text { Interest } & 10,000 \
\text { Insurance on furniture and fixtures } & 6,000 \
\text { Utilities and telephone } & 20,000
\end{array}$$ 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 only deductible expense for tax purposes from the list provided is the cost of goods sold ($160,000). Expenses related to illegal activities, such as salaries for illegal operations, illegal kickbacks, and bribes, are not deductible. However, the cost of goods sold is considered a direct cost of producing the goods and is deductible, even if the operation is illegal. Other operational expenses like 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