Create a 3 page essay paper that discusses US Taxation Benchmark #3.The fact that Mia does not paint for the purpose of profit qualifies her artwork venture as a hobby rather than a business. Since Mia’s expenses are hobby expenses, she may not claim a loss from her artwork, although she can deduct the expense from the income from her artworks.An expense is reasonable if, in its nature and amount, it does not exceed what a prudent person would incur in the context of competitive business. Reasonableness of specific expenses must be examined with precise care in connection with the motive of the business venture, whether for profit or non-profit. If an initial review of the facts results in a test of a specific expense by the business entity, the burden of proof shall be upon the entity to establish that such expense is reasonable. A reasonable expense depends on a variety of factors such as whether it is the type of expense generally recognized as necessary and ordinary for the conduct of the entity’s business. Furthermore, the trading activities should exhibit adherence to relevant laws and regulations, generally accepted sound business practices, and arm’s-length bargaining.The U.S congress enacted the Internal Revenue Code in order to tax net income. According to the legislation, taxable income, whether obtained illegally or legally is subject to federal income tax rules.A business bad debt is a loss due to the worthlessness of a debt was created in the course of the business or it closely related to the business entity when it became worthless. Debts closely relate to a business if the primary motive of incurring them is business related. The main cause of business bad debt is credit sales. Businesses deduct their bad debts from the gross income when figuring their taxable income. Businesses can deduct bad debts in part or in full. Businesses can claim a business bad debt using either the nonaccrual experience method or the specific charge-off method.Nonbusiness debts