Determine the current tax deduction allowed in each of the following situations:
a. Sam owns and operates SoftPro, a software programming business. In June, the firm files for bankruptcy. Eighteen months earlier, Sam’s attorney, Karl, had recommended SoftPro as a good investment to his clients. Three of Karl’s clients each loaned SoftPro $40,000 at 12% interest. To avoid losing his three clients, Karl repays the $40,000 each client had loaned to SoftPro.
b. During the year, Susan’s mother is hospitalized for 3 weeks and incurs $36,000 of medical costs. Her mother’s insurance company pays only $22,000 of the medical expenses. Because her mother could pay only $4,000 of the remaining medical costs, Susan pays the remaining $10,000. Susan’s mother does not qualify as her dependent.