Above the Line Deductions

Question 1

What is taxable income?

Answer 1

AGI - itemized deductions or standard deduction

+ personal exemptions

=

taxpayers taxable income

Question 2

Who is entitled to deduct trade or business expenses?

Answer 2

• Individuals, partnerships, and corporations are entitled to deduct
• all the ordinary and necessary expenses
• paid or incurred in carrying on a trade of business

Question 3

What are ordinary expenses?

Answer 3

Expenses that are common and acceptable in the taxpayers field of business

Question 4

What are necessary expenses?

Answer 4

Expenses that are helpful to taxpayers business; they need not be essential or indispensible

Question 5

Non-Deductible Expenses

Answer 5

Common:

• kickbacks,
• illegal payments,
• fines,
• contributions to political campaigns

Less Common:

• charitable contributions in excess of the limits

Question 6

Business meals and business entertainment deductions

Answer 6

RULE:

• Can ony deduct up to 50%

Question 7

Unreimbursed employee expenses

Answer 7

Allowed only as itemized deductions when they exceed 2% of AGI, and only the excess can be deducted