David purchases a yacht solely for the purpose of entertaining real estate clients. He wishes to position himself as a high-end real estate salesperson specializing in very expensive residences and uses the yacht only for business entertainment. During 2018, his expenses for maintaining and operating the yacht, including depreciation, were $28,000. In addition, he incurred $9,000 of catering expenses for meals he provided to business clients on the yacht. What is David's tax deduction in 2018? Explain.

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Myla

Business

24 July, 03:50

David purchases a yacht solely for the purpose of entertaining real estate clients. He wishes to position himself as a high-end real estate salesperson specializing in very expensive residences and uses the yacht only for business entertainment. During 2018, his expenses for maintaining and operating the yacht, including depreciation, were $28,000. In addition, he incurred $9,000 of catering expenses for meals he provided to business clients on the yacht. What is David's tax deduction in 2018? Explain.

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Corbin Frost · Answer 1

The tax deductions for the year are as follows:

Depreciation $28000

Catering expenses (50%) $4500

Total deductions $32500

Explanation:

Depreciation is deductible in full as it is an operating expense for the year 2018.

Catering expenses deduction is limited to 50% maximum, while the remaining 50% is not an allowable deduction for tax purposes.