Tom operates an illegal drug-running operation and incurred the following expenses:
Which of the above amounts reduces his taxable income?

A)$0.
B)$160,000.
C)$279,000.
D)$324,000.
E)None of the above.

Question

Tom operates an illegal drug-running operation and incurred the following expenses:
Which of the above amounts reduces his taxable income?

A)$0. 
B)$160,000. 
C)$279,000. 
D)$324,000. 
E)None of the above.

Quizplus · Accepted Answer

The only expense that can be deducted for illegal activities is the cost of goods sold (COGS), which is the cost of acquiring or producing the goods that were sold. In this case, the COGS was $160,000. The other expenses (bribes, salaries, rent, etc.) are not deductible because they are associated with an illegal business. Therefore, the taxable income would be reduced by the COGS of $160,000.

Tom Operates an Illegal Drug-Running Operation and Incurred the Following