Kitty Runs a Brothel (Illegal Under State Law) and Has

Essay

Kitty runs a brothel (illegal under state law) and has the following items of income and expense. What is the amount that she must include in taxable income from her operation? $\begin{array}{lr}\text { Income }&\$200,000\\\text { Expenses: }\\\text { Rent } & 8,000 \\\text { Utilities } & 2,000 \\\text { Bribes to police } & 10,000 \\\text { Office supplies } & 5,000 \\\text { Legal fees } & 20,000 \\\text { Depreciation } & 14,000 \\\text { Illegal kickbacks } & 15,000\end{array}$