Tom operates an illegal drug-running operation and incurred the following expenses:
Salaries
$ 75,000
Illegal kickbacks
20,000
Bribes to border guards
25,000
Cost of goods sold
160,000
Rent
8,000
Interest
10,000
Insurance on furniture and fixtures
6,000
Utilities and telephone
20,000
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

Quizplus · Accepted Answer

The cost of goods sold (COGS) is generally deductible even for illegal operations, as it is considered a direct cost of producing or purchasing the goods sold. Other expenses related to illegal activities, such as kickbacks and bribes, are not deductible.

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