Problem 1. Ordinary & Necessary Business Expenses. Sophia is the sole owner of a catering business, called Sophia's Fine Catering (hereinafter "SFC) that earned $1,500,000 in revenues in 2018. Please determine which of the following expenses are deductible as ordinary and necessary business expenses: 0 SFC incurred $399,857 in expenses for food supplies that were all used during the tax year, SFC put the expenses on its credit card and then paid the full balance on the card each month. SFC paid $237,000 in total wages to its 4 full time employees and 5 part-time employees during the year as well as $18,131 in FICA taxes. SFC also withheld and paid $18,131 employee portion of FICA taxes (this withheld amount was included in the total wages amount). SFC also paid $47,000 in health insurance premiums for the health insurance plan that covers all the full time employees and Sophia. (iii) SFC paid $3,000 for various client development lunches Sophia had with prospective clients, plus $500 for the restaurant bill for a holiday party for Sophia's family (iv) SFC paid $57,000 for fine linens imported from Bangaladesh and $85,000 for fine crystal imported from the Czech Republic, all of which are used to provide the catering services Additionally, SFC paid $47,000 for other supplies used in the delivery of the catering services. Although Sophia occasionally (about 4-5 times a year) hosts parties for friends using these supplies and products (v) SFC pays a fine of $2,000 every year to the local government for failure to file for a local business food handler's permit (the permit would cost $10,000 a year). SFC does require its individual employees that prepare or serve food to maintain state level food handlers permits and it reimburses these expenses at a total cost of $750. (vi) SFC paid its external accountants $32,000 for its annual audit and general consulting services to train the company's book-keeper. SFC also paid $5,500 in attorney's fees for reviewing its contracts. Problem 1. Ordinary & Necessary Business Expenses. Sophia is the sole owner of a catering business, called Sophia's Fine Catering (hereinafter "SFC) that earned $1,500,000 in revenues in 2018. Please determine which of the following expenses are deductible as ordinary and necessary business expenses: 0 SFC incurred $399,857 in expenses for food supplies that were all used during the tax year, SFC put the expenses on its credit card and then paid the full balance on the card each month. SFC paid $237,000 in total wages to its 4 full time employees and 5 part-time employees during the year as well as $18,131 in FICA taxes. SFC also withheld and paid $18,131 employee portion of FICA taxes (this withheld amount was included in the total wages amount). SFC also paid $47,000 in health insurance premiums for the health insurance plan that covers all the full time employees and Sophia. (iii) SFC paid $3,000 for various client development lunches Sophia had with prospective clients, plus $500 for the restaurant bill for a holiday party for Sophia's family (iv) SFC paid $57,000 for fine linens imported from Bangaladesh and $85,000 for fine crystal imported from the Czech Republic, all of which are used to provide the catering services Additionally, SFC paid $47,000 for other supplies used in the delivery of the catering services. Although Sophia occasionally (about 4-5 times a year) hosts parties for friends using these supplies and products (v) SFC pays a fine of $2,000 every year to the local government for failure to file for a local business food handler's permit (the permit would cost $10,000 a year). SFC does require its individual employees that prepare or serve food to maintain state level food handlers permits and it reimburses these expenses at a total cost of $750. (vi) SFC paid its external accountants $32,000 for its annual audit and general consulting services to train the company's book-keeper. SFC also paid $5,500 in attorney's fees for reviewing its contracts