Part X: Deductions Flashcards
for AGI
- deductions from GI to arrive at AGI
2. above-the-line deduction
from AGI
below-the-line/itemized deduction
3 categories of transactions
- personal
- trade/business
- investment
personal
personal expenses cannot be deducted unless there is a specific exclusion such as charitable deductions
trade/business
bus. expenses are deductible if they are related to the bus. ops. and are ordinary, necessary, and reasonable
exceptions to trade/business rule
- Fines or penalties are not deductible.
2. For illegal drug businesses, only CoGS is allowed as a deductible expense.
investment
inv. expenses are deductible if they are ordinary, necessary, and reasonable
examples of for AGI deductions
- alimony payments
- trade/bus. expenses
- rent/royalty expenses
- losses
- 50% of self-employment tax
- 100% of medical insurance if self-employed
- Moving expenses (that qualify)
- IRA and Keogh contributions
- Student loan interest (up to $2,500 per year)
requirements for moving expenses to qualify
- Move must be b/c of new job or a first job
- New job must add 50+ miles to the commute if the employee did not move.
- Employee must be at new job for 39 wks. during next 12 mos.
- Qualified expenses are limited to reasonable amounts paid to move possessions, transport costs, and lodging.
- Meals along the way and temporary living expenses are NOT deductible.
6 types of personal expenses that qualify as itemized deductions:
- Medical expenses
- Home mortgage interest
- Certain taxes
- Charitable contributions
- Casualty losses
- Misc. deductions.
medical expense criteria
- Only med exp. in excess of 10% of AGI are allowed as a deduction.
deductible medical expenses
- Costs for doctors, eyeglasses, dentists, health insurance, prescribed drugs, med. transport, and travel up to $50 per night per person and costs of altering home for handicapped persons.
- Deduction is claimed in the year the cost was incurred.
home mortgage interest
- Interest paid on debt relating to the principal residence and second home is deductible.
- Debt limited to $1 mil. to purchase, build, or improve residence.
deductible taxes
Personal income taxes imposed by state, local, or foreign govts. are deductible.
charitable contributions
- Includes donations to a qualifying org.
- Can be cash or property but not services.
- Written records of contributions are required.
- Deduction is limited to 50% of AGI or 30% of AGI if the contribution contains a LTCG.
deductible casualty losses
Gambling losses can only be deducted up to the amount of gambling winnings.
standard deduction
- set amount that is a larger deduction than itemized deductions for many people.
- Take the higher of itemized or standard deductions.
standard deduction amounts for 2015
- Single/MFS: $6,200.
- Head of household: $9,100.
- MFJ: $12,200.
Who is eligible for the additional standard deduction?
Taxpayers either bling or over age 65.
additional standard deduction amounts for 2015
- For unmarried persons: $1,550.
2. For married persons: $1,200.
deductible bus. travel expenses
- Limited to trips that have a bus. purpose.
- Amount and purpose must be substantiated.
- Meals and lodging “away from home” are deductible.
- Only 50% of meal costs are deductible.
entertainment deductions
- Activity must have a bus. purpose.
- Substantial bus. discussion must occur.
- Written records are required (receipts).
- Only 50% of the entertainment expenses are deductible.
- Club dues not deductible.
business gifts
- A business gift of $25 per customer is deductible.
2. If multiple gifts are given, gifts
To deduct non-bus. bad debt:
- Must be an actual loan.
- Deductible as a STCL in the year it is determined to be completely worthless.
- Partial worthlessness is not deductible.
To deduct bus. bad debt:
- Only direct-write-off method is allowed.
2. Deducted to the extent the loan is partially worthless.
deducting worthless assets
- Asset must be totally useless.
2. Treated as sold for no consideration on the last day of taxable yr.
rental real estate rules
- If a taxpayer has passive losses, the deductible amount per yr. is $25k.
- If the taxpayer’s AGI > $100k, then the $25k is reduced by 50% of the taxpayer’s AGI above $100k.
criteria to deduct passive losses from rental real estate
The person must own 10+% of the rental activity and actively participate.
hobby expenses
- Can be deducted if the hobby generates revenue.
2. Can only be deducted as 2% miscellaneous itemized deductions.
W/hobby expenses, who has the burden of proof for proving a lack of profit motive?
- This burden can be shifted to the IRS when the activity generates a profit in 3 out of 5 consecutive yrs.
- If there are losses in 3 of 5 previous yrs, the taxpayer has the burden of proving the activity is a business to the IRS and not just a hobby.
