Question

Three requirements must be met in order to deduct a trade or business expense. Also, deductible trade or business expenses may not be which of the following:

I. a capital expenditure.
II. reasonable in amount.
III. a payment that frustrates public policy.
IV. an expense related to tax-exempt income.
a. Only statement I is correct.
b. Only statement II is correct.
c. Statements III and IV are correct.
d. Statements I, II, and III are correct.
e. Statements I, III, and IV are correct.

Answer 1

Three requirements must be met in order to deduct a trade or business expense. Deductible trade or business expenses may not be a capital expenditure, reasonable in amount, related to tax-exempt income, or a payment that frustrates public policy.

Step-by-step explanation:

In order to deduct a trade or business expense, three requirements must be met:

1. The expense must be ordinary and necessary in your trade or business.
2. The expense must be directly related to your trade or business.
3. The expense must be reasonable in amount.

Deductible trade or business expenses may not be: I. a capital expenditure, IV. an expense related to tax-exempt income, or III. a payment that frustrates public policy.

Therefore, the correct answer is e. Statements I, III, and IV are correct.