Question

Which income is taxable and which is deductible under sections 63 and 62 respectivly?

1. Wife’s LLC incurred the following expenses in the catering business: (a) $30,000 cost of food sold during 2019; (b) $18,000 of rent paid to an unrelated, third party landlord; (c) $1,000 of utilities (for electricity, water, etc. used in the leased space); (d) $31,000 for salaries of employees; and (e) $2,100 of Social Security taxes (to match the $2,100 of Social Security tax withheld from the employees’ paychecks).

Answer 1

Section 62 of the US Internal Revenue Code defines the term adjusted gross income. The deductions allowed by this chapter are attributable to a business or trade, if such trade or business does not consist of the performance of services by the taxpayer as an employee.

Section 63 defines the term “taxable income” means gross income minus the deductions allowed by this chapter (other than the standard deduction)

We're assuming that in Wife's LLC, the taxpayer is not providing services as an employee.

Amount	Nature of Expense	Remarks
30,000 $	Cost of Food Sold During 2019	Allowable u/s 62 as business expense
18,000 $	Rent Paid to Unrelated Landlord	Allowable u/s 62 as business expense
1,000 $	Utility expenses in leased space	Allowable u/s 62 as business expense
31,000 $	Salary Paid to employees	Allowable u/s 62 as business expense
2,100 $	Social Security Tax Paid - Employer's Contribution	This is allowed u/s 162