Question

Indicate the amount (if any) that Josh can deduct as an ordinary and necessary business deduction in each of the following situations. Josh borrowed $87,000 from the First State Bank using his business assets as collateral. He used the money to buy City of Blanksville bonds. Over the course of a year, Josh paid interest of $13,300 on the borrowed funds, but he received $12,000 of interest on the bonds. How much can Josh deduct as an ordinary and necessary business deduction?

1) $13,300
2) $12,000
3) $1,300
4) Cannot be determined

Answer 1

Josh can deduct $1,300 as an ordinary and necessary business deduction.

Step-by-step explanation:

To determine the amount that Josh can deduct as an ordinary and necessary business deduction, we need to compare the interest paid on the borrowed funds ($13,300) to the interest received on the bonds ($12,000).

If the interest paid is greater than the interest received, then Josh can deduct the difference as an ordinary and necessary business deduction. In this case, the interest paid is $13,300 and the interest received is $12,000, so Josh can deduct $1,300 as an ordinary and necessary business deduction.

Therefore, the correct answer is:

1. $1,300