Deductions - Basis Principles Flashcards
What are 2 types of deductions for individuals? Where are they reported?
- Deductions for AGI - Form 1040.
2. Deductions from AGI (itemized deductions) - Schedule A.
What are 3 mutually exclusive categories for tax purposes?
Trade or business.
Investment.
Personal.
Are expenses related to one’s personal activities deductible?
No in general unless specifically provided in the IRC (i.e. charitable contributions, mortgage interest).
Are expenses related to trade or business deductible? What about related to investment?
Yes, if they are related to the business operations and are ordinary, necessary, and reasonable.
Same as above.
Are expenses related to the management or maintenance of property and in connection with the determination of any tax deductible?
Yes.
What does “ordinary and necessary” mean? “Reasonable”?
The nature of the expenditure is customary and appropriate under the circumstances.
Reasonable in amount.
When is the executive compensation for the CEO and 4 other highly compensated officers of a public company nondeductible? Exception?
When exceeds $1 million per person.
unless the income is based on a performance-based compensation plan.
Are lobbying expenses at the state and federal level deductible? At the city and county government level?
No.
Yes.
Are expenses that are used to general tax-exempt income deductible?
No.
Are political contributions deductible?
No.
Are expenses against public policy deductible? Examples?
No.
Bribes, fines, penalties, etc.
Are expenses used to operate an illegal drug business deductible? Exception?
No.
COGS can be deducted.
Are ordinary, necessary, and reasonable expenses of operating other types of illegal businesses deductible?
Yes as long as the expense is not against public policy.
