Question

Written Assignment # 1 Julia operates a small business making gourmet pizza for high‐end events. Julia’s business is called “Pizza Like the Italians”. In order to learn how Italians make pizza, Julia flew to Italy in 2018 and visited several pizza shops. During her trip, she visited with the pizza makers and solicited advice regarding how to make the best pizza. She also purchased some ingredients that she could not find in the U.S.

The cost of her trip was $3,500 and the cost of the ingredients was $1,200 In addition, Julia had the following items for 2018: $70,000 gross income from pizza sales $20,000 of operating expenses and COGS (not including the expenses discussed above) 2,500 miles driven for business purposes Can Julia deduct the cost of her trip to Italy, including the ingredients? Why or why not? Please calculate (showing your work) Julia’s adjusted gross income and her taxable income for the year. Assume she claims the standard deduction for a single filer. Be sure to explain any calculations.

Answer 1

Travels for business purpose are 100% deductible including meals, lodging (receipts required for expenses > $75), transportation, incidental expenses.

Travel for business related convention/seminar is allowable however no deduction on travel for education.

In the given case, since Julia had traveled to Italy to learn how to make pizza and she visited pizza makers and solicited advice regarding how to make best pizza, this travel would qualify for travel for business purpose and would be 100% tax deductible.

Also, for the ingredients purchased from Italy would also be allowed to be deducted as the same is a necessary business expense.

Calculation of adjusted gross income and taxable income:

Particulars	Amount	Amount
Gross Income		70,000
Less: Expenses
COGS and operating expenses	20,000
Transportation (2,500 miles @ 0.58 per mile)	1,450
Business Travel	3,500
Ingredients	1,200	26,150
Adjusted Gross Income		43,850
Less : Standard Deduction		12,200
Taxable Income		31,650

Feel free to ask for any clarification, if required. Kindly provide feedback by thumbs up. It would be highly appreciated. Thank You.