Chapter 6: Intro to Deductions

Question 1

deductions in general

Answer 1

nothing is deductible unless Congress says that it is
- start with the presumption that nothing is deductible

Question 2

Deductions

Answer 2

• deductions are not entitlements: they are a matter of legislative grace
• substantiation requirements:
  
  • taxpayer has burden of proof
  • adequate records of expenses must be maintained (keep good records)

Question 3

classifications of deductible

Answer 3

• ATLD
• BTLD

Question 4

Trade or Business Expenses

Answer 4

the most common ATLD

Question 5

ATLD vs BTLD

Answer 5

ATLD are more advantageous than BTLD
- ATLD reduce the starting point for most state returns

Question 6

ATLD: Trade or Business Expenses

Answer 6

• only net profit (after expenses) is included in taxpayers income and is a ATLD

Question 7

ATLD: Trade or Business Expenses
(expenses must be:)

Answer 7

• ordinary
• necessary
• reasonable

Question 8

ATLD: Trade or Business Expenses:
(additional expenses for Sole Proprietors, Partners > 2% owners of S-Corps:)

Answer 8

• half of self employment tax paid
• self employed retirement plan contributions
• self employed health insurance premiums

Question 9

limitations on Long Term Care Insurance

Answer 9

• ATLD & BTLD are both subject to these limits
• if you’re self employed, this counts as health insurance for you

Question 10

Health Savings Accounts (HSA’s)

Answer 10

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Question 11

traditional IRA

Answer 11

• get a deduction when the $ goes in, it grows tax free, when the $ is distributed its treated as ordinary income

Question 12

who can deduct contributions to a traditional IRA?

Answer 12

insert pic of table