Chapter 5 - Other Deductions Flashcards
For insurance expenses: TP may not deduct
1) Loss of earnings except for certain overhead insurance expenses
2) Self insurance reserve funds
a) deductible when payment made
3) Premiums on a life insurance policy covering the tp, an employee, or any person a financial interest in the tp’s business if the tp is directly or indirectly beneficiary
4) Cost for a self employed tp eligible for coverage under the plan of his or her spouse’s employer
What is non business debt?
1) investments are not treated as a trade or business
2) A SH loan to protect his or her investment in the corporation nis not treated as a business loan
3) A partially worthless nonbusiness bad debt is NOT DEDUCTIBLE
4) A wholly worthless nonbusiness debt is deducted in the year it become worthless, and it is then treated as a ST capital loss
Specific Write off Method
If the specific write off method is used, tp can deduct specific bad debts that become either partly or totally worthless during the tax year
What are the examples of Start up costs vs Organizational costs
What expenditures aren’t deductible?
1) Fines and penalties paid to the government for violation of the law
2) Illegal bribes and kickbacks ( including Medicare and Medicare referrals) provided the law is generally enforced
3) 2/3rds of damages for violation of federal antitrust law
4) Expenses of dealers in illegal drugs
What other business expenses are deductible
office supplies, advertising, professional fees, and banks
Costs of removing barriers to the disabled and the elderly
1) deducted up to 15,000 in a year
2) The costs incurred adove the limit can be added to the basis of the property and depreciated
3) A tax credit for eligible access expenditures of up to 50% of 10,000 is available for small businesses ( make less than 1 million in gross receipts ).
Limitation of nondeductions that are deductible
1) GI derived from the use minus
2) Deductions related to the home, allowed regardless of business or personal use , and
3) Deductions allocable to the trade or businesss for which the home office is used that are not home office expenses
Who are statutory nonemployees
direct seller, licensed real estate agents, and companion sitters
What are the trades and business that are not SSTB
Architects, Engineers, Real estate agents and brokers, and insurance agents and brokers
Exclusive Use Test
Any personal use of the business portion of the building by anyone results in a complete disallowance of the deductions. However, there are two exceptions to the exclusive use test: a) Retail/whole sale b) day care
When are political contributions deductible ?
Lobbying activity equates to appearances before and communications with any council or similar governing body with respect to legislation of direct interest to the taxpayer is deductible
Up to 2000 of direct lobbying costs, but professional lobbyist aren’t included.
