Question

After purchasing a bankrupt business, Samara attempts to generate goodwill by paying off some of the debts that were canceled by the bankruptcy court. Because the payments are necessary, Samara can deduct them.

1) True
2) False

Answer 1

Samara can deduct the payments made to pay off canceled debts as they are considered necessary for the business.

Step-by-step explanation:

In this case, the student is asking about the deductibility of debt payments made by Samara, who purchased a bankrupt business and wants to generate goodwill by paying off some of the canceled debts. It is true that Samara can deduct these payments as they are considered necessary for the business. Deductible expenses are those that are ordinary, necessary, and directly related to the business.