Part X: Deductions

Question 1

for AGI

Answer 1

1. deductions from GI to arrive at AGI

2. above-the-line deduction

Question 2

from AGI

Answer 2

below-the-line/itemized deduction

Question 3

3 categories of transactions

Answer 3

1. personal
2. trade/business
3. investment

Question 4

personal

Answer 4

personal expenses cannot be deducted unless there is a specific exclusion such as charitable deductions

Question 5

trade/business

Answer 5

bus. expenses are deductible if they are related to the bus. ops. and are ordinary, necessary, and reasonable

Question 6

exceptions to trade/business rule

Answer 6

1. Fines or penalties are not deductible.

2. For illegal drug businesses, only CoGS is allowed as a deductible expense.

Question 7

investment

Answer 7

inv. expenses are deductible if they are ordinary, necessary, and reasonable

Question 8

examples of for AGI deductions

Answer 8

1. alimony payments
2. trade/bus. expenses
3. rent/royalty expenses
4. losses
5. 50% of self-employment tax
6. 100% of medical insurance if self-employed
7. Moving expenses (that qualify)
8. IRA and Keogh contributions
9. Student loan interest (up to $2,500 per year)

Question 9

requirements for moving expenses to qualify

Answer 9

1. Move must be b/c of new job or a first job
2. New job must add 50+ miles to the commute if the employee did not move.
3. Employee must be at new job for 39 wks. during next 12 mos.
4. Qualified expenses are limited to reasonable amounts paid to move possessions, transport costs, and lodging.
5. Meals along the way and temporary living expenses are NOT deductible.

Question 10

6 types of personal expenses that qualify as itemized deductions:

Answer 10

1. Medical expenses
2. Home mortgage interest
3. Certain taxes
4. Charitable contributions
5. Casualty losses
6. Misc. deductions.

Question 11

medical expense criteria

Answer 11

1. Only med exp. in excess of 10% of AGI are allowed as a deduction.

Question 12

deductible medical expenses

Answer 12

1. 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.
2. Deduction is claimed in the year the cost was incurred.

Question 13

home mortgage interest

Answer 13

1. Interest paid on debt relating to the principal residence and second home is deductible.
2. Debt limited to $1 mil. to purchase, build, or improve residence.

Question 14

deductible taxes

Answer 14

Personal income taxes imposed by state, local, or foreign govts. are deductible.

Question 15

charitable contributions

Answer 15

1. Includes donations to a qualifying org.
2. Can be cash or property but not services.
3. Written records of contributions are required.
4. Deduction is limited to 50% of AGI or 30% of AGI if the contribution contains a LTCG.

Question 16

deductible casualty losses

Answer 16

Gambling losses can only be deducted up to the amount of gambling winnings.

Question 17

standard deduction

Answer 17

1. set amount that is a larger deduction than itemized deductions for many people.
2. Take the higher of itemized or standard deductions.

Question 18

standard deduction amounts for 2015

Answer 18

1. Single/MFS: $6,200.
2. Head of household: $9,100.
3. MFJ: $12,200.

Question 19

Who is eligible for the additional standard deduction?

Answer 19

Taxpayers either bling or over age 65.

Question 20

additional standard deduction amounts for 2015

Answer 20

1. For unmarried persons: $1,550.

2. For married persons: $1,200.

Question 21

deductible bus. travel expenses

Answer 21

1. Limited to trips that have a bus. purpose.
2. Amount and purpose must be substantiated.
3. Meals and lodging “away from home” are deductible.
4. Only 50% of meal costs are deductible.

Question 22

entertainment deductions

Answer 22

1. Activity must have a bus. purpose.
2. Substantial bus. discussion must occur.
3. Written records are required (receipts).
4. Only 50% of the entertainment expenses are deductible.
5. Club dues not deductible.

Question 23

business gifts

Answer 23

1. A business gift of $25 per customer is deductible.

2. If multiple gifts are given, gifts

Question 24

To deduct non-bus. bad debt:

Answer 24

1. Must be an actual loan.
2. Deductible as a STCL in the year it is determined to be completely worthless.
3. Partial worthlessness is not deductible.

Question 25

To deduct bus. bad debt:

Answer 25

1. Only direct-write-off method is allowed.

2. Deducted to the extent the loan is partially worthless.

Question 26

deducting worthless assets

Answer 26

1. Asset must be totally useless.

2. Treated as sold for no consideration on the last day of taxable yr.

Question 27

rental real estate rules

Answer 27

1. If a taxpayer has passive losses, the deductible amount per yr. is $25k.
2. If the taxpayer’s AGI > $100k, then the $25k is reduced by 50% of the taxpayer’s AGI above $100k.

Question 28

criteria to deduct passive losses from rental real estate

Answer 28

The person must own 10+% of the rental activity and actively participate.

Question 29

hobby expenses

Answer 29

1. Can be deducted if the hobby generates revenue.

2. Can only be deducted as 2% miscellaneous itemized deductions.

Question 30

W/hobby expenses, who has the burden of proof for proving a lack of profit motive?

Answer 30

1. This burden can be shifted to the IRS when the activity generates a profit in 3 out of 5 consecutive yrs.
2. 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.