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Vella owns and operates an illegal gambling establishment. In connection with this activity, he has the following expenses during the year:

Rent $24,000
Bribes $40,000
Travel Expense $ 4,000
Utilities $18,000
Wages $230,000
Payroll Taxes $13,800
Property Insurance $1,600
Illegal kickbacks $22,000

What are Vella's total deductible expenses for tax purposes?

1 Answer

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Final answer:

Vella's total deductible expenses for tax purposes, excluding any illegal activities, would amount to $291,400. This includes rent, travel expenses, utilities, wages, payroll taxes, and property insurance.

Step-by-step explanation:

The student is asking about which expenses are deductible for tax purposes from an illegal gambling establishment. It's important to note that while the income from illegal activities is taxable, the expenses incurred in generating that illegal income are typically not deductible. However, for the purpose of this example, if we were to ignore the nature of the business, the total deductible expenses would be calculated by adding up legitimate business expenses such as rent, travel expenses, utilities, wages, payroll taxes, and property insurance while excluding any illegal activities like bribes and kickbacks. So the deductible expenses would be:

  • Rent: $24,000
  • Travel Expense: $4,000
  • Utilities: $18,000
  • Wages: $230,000
  • Payroll Taxes: $13,800
  • Property Insurance: $1,600

When we total these expenses, we get:

Total Deductible Expenses = $24,000 + $4,000 + $18,000 + $230,000 + $13,800 + $1,600 = $291,400

Bribes, illegal kickbacks, and other related expenses are not deductible for tax purposes as they are illegal by nature.

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