permits the dec Personal or Business Expenses? Mortgage interest Real estate taxes Salaries for two employees Groceries for breakfast and snacks Depreciation Ethics & Equity For the last eight years, Jaynice and her fam- ily have lived in a large Victorian house in New England. In the current year, Jaynice and her husband decide to convert the home into a bed-and-breakfast. The family (including the two children and the dog) moves into the basement, which accounts for 30 percent of the square footage of the house. The basement has two bedrooms, two baths, a den, and a small kitchen. The upper two floors of the house are used for the bed-and-breakfast, which is operated as a sole proprietorship. Jaynice hires two employees to help her run the business. Total expenses for the first year of operation are as follows: $18,000 3,000 40,000 7,000 10,000 For breakfast, all of the family members eat the same food that is prepared for the guests. They usually also share in the homemade cookies and cakes in the evening. On Jaynice's Schedule C for the business, she deducts $78,000 of expenses for the current tax year. Discuss whether these deductions are appropriate.

Ethics \& Equity Personal or Business Expenses? For the last eight years, Jaynice and her family have lived in a large Victorian house in New England. In the current year, Jaynice and her husband decide to convert the home into a bed-and-breakfast. The family (including the two children and the dog) moves into the basement, which accounts for 30 percent of the square footage of the house. The basement has two bedrooms, two baths, a den, and a small kitchen. The upper two floors of the house are used for the bed-and-breakfast, which is operated as a sole proprietorship. Jaynice hires two employees to help her run the business. Total expenses for the first year of operation are as follows: \begin{tabular}{lr} Mortgage interest & $18,000 \\ Real estate taxes & 3,000 \\ Salaries for two employees & 40,000 \\ Groceries for breakfast and snacks & 7,000 \\ Depreciation & 10,000 \end{tabular} For breakfast, all of the family members eat the same food that is prepared for the guests. They usually also share in the homemade cookies and cakes in the evening. On Jaynice's Schedule C for the business, she deducts $78,000 of expenses for the current tax year. Discuss whether these deductions are appropriate