Terry and Jim are both involved in operating businesses. Terry operates an illegal gambling business and Jim operates a business selling medical cannabis products to people with doctors prescriptions, as allowed by state law. Both businesses have gross revenues of $500,000. The businesses incur the following expenses.

Terry Jim

Employee salaries $200,000 $200,000

Bribes to police 25,000 0

Rent and utilities 50,000 25,000

Cost of goods sold 0 100,000

Which of the following statements is correct?

a. Neither Terry nor Jim can deduct any of the above items in calculating taxable income.

b. Terry should report taxable income from his business of $500,000.

c. Jim should report taxable income from his business of $175,000.

d. Terry should report taxable income from his business of $250,000.

e. Jim should report taxable income from his business of $500,000.