Question

Expenses and losses Denied for Taxable Income Purposes but Allowed for E&P purposes are?

A) Entertainment expenses
B) Charitable contributions
C) Federal income tax expense
D) Interest expenses

Answer 1

The expenses and losses denied for taxable income purposes but allowed for E&P purposes are interest expenses.

Step-by-step explanation:

The correct answer is D) Interest expenses. Interest expenses are typically denied for taxable income purposes but allowed for E&P (earnings and profits) purposes. This means that a business can deduct interest expenses when calculating its earnings and profits, which is important for determining its tax liability, but these expenses may be limited or disallowed when calculating taxable income for federal income tax purposes. An example of this is when a business takes out a loan to fund its operations and pays interest on that loan. The interest expenses may be deductible for E&P purposes, but the deductible amount for taxable income purposes may be limited based on the applicable tax laws and regulations.