In the current year, Paul acquires a car for $16,000. He uses the car in his advertising business and for personal purposes. His records indicate the car is used 60% for business and that the total operating expenses, including depreciation, are $4,700. Paul expects to use the car for 5 years in his business. What amount can Paul deduct as the operating costs of the car?
A)$- 0 -
B)$2,400
C)$2,820
D)$4,700
E)$12,000

Question

Quizplus · Accepted Answer

To find the amount Paul can deduct as operating costs of the car, we need to first calculate the annual depreciation expense: 
Depreciation expense = (Car cost - Salvage value) / Useful life
Salvage value is the estimated value of the car at the end of its useful life. Let's assume it is $2,000. 
Depreciation expense = (16,000 - 2,000) / 5 = $2,800 per year
Since Paul uses the car 60% for business, his deductible operating costs would be:
Deductible operating costs = Total operating expenses x Business use percentage
Deductible operating costs = $4,700 x 0.6 = $2,820 
Therefore, the correct answer is (C) $2,820.

In the Current Year, Paul Acquires a Car for $16,000