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question 1. The tax law allows an income tax deduction for state and local income taxes or state and local sales taxes paid. Explain the justification for each.

question 2. During the current year, Yellow Company had operating income of $380,000 and operating expenses of $300,000. In addition, Yellow had a long-term capital loss of $50,000. Based on this information, how does Alexandria, the sole owner of Yellow Company, report this information on her individual income tax return under the following assumptions? I. Yellow is a proprietorship, and Alexandria does not withdraw any funds from the company during the year. II. Yellow is an LLC, and Alexandria does not withdraw any funds from the company during the year. III. Yellow is an S corporation, and Alexandria does not withdraw any funds from the company during the year. IV. Yellow is a regular corporation, and Alexandria does not withdraw any funds from the company during the year.

QUESTION 3.

Gladys owns a retail hardware store in Tangipahoa. She is considering opening a business in Hammond, a community located 25 miles away. She incurs expenses of $60,000 in 2014 in investigating the feasibility and desirability of doing so. What amount can Gladys deduct in 2014 if the business is I. another retail hardware store that she opens in December 2014? II. another retail hardware store that she decides against opening? III. a video rental store that she opens in December 2011? IV. a video rental store that she decides against opening?