Judy is a self-employed musician who performs for a variety of events. This year Judy was fined $250 by the city for violating the city's noise ordinance with a relatively loud performance. As a consequence, Judy contributed $1,000 to a campaign committee formed to recall the city's mayor. Judy normally hires three part-time employees to help her schedule events and transport equipment. Judy paid a total of $33,000 to her employees through June of this year. In June Judy fired her part-time employees and hired her husband to replace them. However, Judy paid him $55,000 rather than $33,000. Judy is on the cash method and calendar year, and she wants to know what amount of these expenditures is deductible as business expenses.

Question

What will be an ideal response?

Answer 1

$66,000.

The fine and political contribution are not deductible, as they are against public policy. The compensation of $33,000 for the part-time employees is deductible. Wages paid to her husband of $33,000 would also be deductible. However, the additional wages of $22,000 would appear to be excessive and therefore not deductible.