Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses.
A)Neither Terry nor Jim can deduct any of the above items in calculating the business profit.
B)Terry should report profit from his business of $250,000.
C)Jim should report profit from his business of $500,000.
D)Jim should report profit from his business of $250,000.
E)None of these.

Question

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. 
A)Neither Terry nor Jim can deduct any of the above items in calculating the business profit. 
B)Terry should report profit from his business of $250,000. 
C)Jim should report profit from his business of $500,000. 
D)Jim should report profit from his business of $250,000. 
E)None of these.

Quizplus · Accepted Answer

Terry and Jim should report net profit from their businesses as follows:
 11ea86f6_cc1a_da48_8084_6b024b73e51a_TB4134_00 For Terry,the bribes to the police of $25,000 cannot be deducted.None of Jim's expenses can be deducted.However,the cost of goods sold is viewed as a negative item in calculating gross income (i.e. ,gross income = gross profit)rather than as a deduction.

Terry and Jim Are Both Involved in Operating Illegal Businesses