Jerry is a furniture salesman for Ashland's Furniture Mart. Jerry purchases a bedroom suite from Ashland's for $10,000. The sticker price is $14,000. Ashland's policy is to "discount" all customer purchases for up to $2,000 off of the sticker price for purchases over $10,000. What is the tax treatment of Jerry's furniture purchase?
I.Jerry must include $4,000 in his gross income.
II.Ashland's Furniture Mart can deduct $2,000 as compensation expense in addition to properly accounting for the sale of the furniture.

Question

Jerry is a furniture salesman for Ashland's Furniture Mart. Jerry purchases a bedroom suite from Ashland's for $10,000. The sticker price is $14,000. Ashland's policy is to "discount" all customer purchases for up to $2,000 off of the sticker price for purchases over $10,000. What is the tax treatment of Jerry's furniture purchase?
I.Jerry must include $4,000 in his gross income.
II.Ashland's Furniture Mart can deduct $2,000 as compensation expense in addition to properly accounting for the sale of the furniture.
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Quizplus · Accepted Answer

Statement I is incorrect because Jerry did not receive cash or other property as compensation for the purchase. Therefore, he does not need to include the "discount" in his gross income.

Statement II is correct because Ashland's Furniture Mart can deduct the $2,000 discount as a business expense. However, this does not necessarily affect the tax treatment of Jerry's purchase.

Jerry Is a Furniture Salesman for Ashland's Furniture Mart