T-6

Front 1

T.6.1

What is "Deduction for AGI"?

Back 1

whether or not the taxpayer can itemizes.

Front 2

T.6.2

What is "Deduction from AGI"?

Back 2

result in a tax benefit only if they exceed the TP’s std deduction.

Front 3

T.6.3

Is it "Deduction FOR or FROM AGI"?

- Expenses attributable to a trade or business carried on by TP. Does not incl. the performance of srvcs by the TP as an emp

Back 3

FOR

Front 4

T.6.4

Is it "Deduction FOR or FROM AGI"?

Expenses incurred by a TP in connection with the performances as an emp if the expenses are

Back 4

FOR

Front 5

T.6.5

Is it "Deduction FOR or FROM AGI"?

- reimbursed and other conditions are satisfied.

Back 5

FOR

Front 6

T.6.6


Is it "Deduction FOR or FROM AGI"?

- Deductions that result from losses on the sales or exchange of property by the TP.

Back 6

FOR

Front 7

T.6.7

Is it "Deduction FOR or FROM AGI"?

- Deductions attributable to property held for the prod of rents and royalties

Back 7

FOR

Front 8

T.6.8

Is it "Deduction FOR or FROM AGI"?

- The deduction for payment of alimony.

Back 8

FOR

Front 9

T.6.9

Is it "Deduction FOR or FROM AGI"?

- The deduction for one-half of the SE tax paid by a self employed TP

Back 9

FOR

Front 10

T.6.10

Is it "Deduction FOR or FROM AGI"?

- The deduction for the med insurance premiums paid by a SE TP for coverage of the TP, spouse, and any dependents

Back 10

FOR

Front 11

T.6.11

Is it "Deduction FOR or FROM AGI"?

- Certain contributions to pension, profit sharing, and annuity plans of SE individuals.

Back 11

FOR

Front 12

T.6.12

Is it "Deduction FOR or FROM AGI"?
- The deduction for certain retirement savings allowed by sec. 219 (e.g. traditional IRAs)

Back 12

FOR

Front 13

T.6.13

Is it "Deduction FOR or FROM AGI"?

- The penalty imposed on premature withdrawal of funds from time savings accounts or deposits

Back 13

FOR

Front 14

T.6.14

Is it "Deduction FOR or FROM AGI"?
- The deduction for moving expenses

Back 14

FOR

Front 15

T.6.15

Is it "Deduction FOR or FROM AGI"?

- The deduction for i-paid on student loands

Back 15

FOR

Front 16

T.6.16

Is it "Deduction FOR or FROM AGI"?

- The deduction for qualified tuition and related expenses under sec. 222 (refer to Ch 9).

Back 16

FOR

Front 17

T.6.17

Is it "Deduction FOR or FROM AGI"?

The deduction for up to $250 for teacher supplies for elementary and secondary school teachers (refer

Back 17

FOR

Front 18

T.6.18

What can be done to deduct more Medical Expense?

Back 18

more deduction in “for AIG”, more medical expenses to be deducted “from AGI”

Front 19

T.6.19-y

What can be part of "Deduction FROM AGI (itemized deduction)"?

Back 19

ITEMIZED DEDUCTIONS (6-5)
Section 212 Expenses are deduction for ordinary & necessary expenses by an individual for
Deductible Personal Expenses (from AGI)
Trade or Bus Expenses & Production of Income Expenses ( can be classified under) (6-6)

Front 20

T.6.20

What are included in "Section 212 Expenses"

Back 20

- The production or collection of income
- The management, conservation, or maintenance of property held for the production of income
- Expenses paid in connection with the determination, collection, or refund of any tax

Front 21

T.6.21

What can be part of ITEMIZED deduction in "Deductible Personal Expenses (from AGI)"?

Back 21

- Contributions to qualified charitable organizations (not to exceed a specified percentage of AGI)
- Medical expenses (in excess of 7.5% of AGI)
- Certain state and local taxes (e.g., real estate taxes and state & local income or sales taxes).
- Personal Casualty Losses (in excess of an aggregate floor of 10% of AGI and a $100 fl per casualty)
- Certain personal interest (e.g. mortgage i on a personal residence)

Front 22

T.6.21

What can be part of ITEMIZED deduction in "Trade or Bus Expenses & Production of Income Expenses ( can be classified under) (6-6)"?

Back 22

- E.g. fund are borrowed for use in a business, the i is deductible as a bus expense
- The expenditure incurred with the intent to realize a profit or to produce income
- Were TP’s ope & mgmt activities extensive enough to indicate the carrying on of a trade or bus?

Front 23

T.6.21

What can be part of ITEMIZED deduction in "Excludes the following items from classifications as trade / bus expenses"?

Back 23

- Charitable contributions or gifts
- Illegal bribes / kickbacks and certain treble damage payment
- Fines / penalties

Front 24

T.6.21

What are "Requirements for Business Expenses"?

Back 24

Any trade or business expenses must be Ordinary and Necessary.

Front 25

T.6.22

What does it mean by "Ordinary"?

Back 25

Ordinary: if it is normal, usual or customary in the type of business conducted by TP and is not capital in nature.

Front 26

T.6.23

What is required for Compensations for services to be qualified?

Back 26

Compensations for services: must be “reasonable”

Front 27

T.6.24

What is compensation for services RELATED to?

Back 27

Related to: 1) the production or collection of income, 2) the management, conservation, or maintenance of property held for the production of income.

Front 28

T.6.25

What are included in "DISALLOWANCE POSSIBILITIES"?

Back 28

PUBLIC POLICY LIMITATION (6-12)
POLITICAL CONTRIBUTIONS AND LOBBYING ACTIVITIES (6-14)
EXCESSIVE EXECUTIVE COMPENSATION (6-15)
INVESTIGATION OF A BUSINESS (6-16)
HOBBY LOSSES (6-18)
RENTAL OF VACATION HOMES (6-20)
EXPENDITURES INCURRED FOR TP’S BENEFIT OR TP’S OBLIGATION (6-25)
DISALLOWANCE OF PERSONAL EXPENDITURES (6-26)
DISALLOWANCE OF DEDUCTIONS FOR CAPITAL EXPENDITURES (6-26)
TRANSACTIONS BETWEEN RELATED PARTIES (6-27)
SUBSTANTIATION REQUIREMENTS (6-29)
EXPENSES AND INTEREST RELATING TO TAX-EXEMPT INCOME (6-29)

Front 29

T.6.26

What is PUBLIC POLICY LIMITATION in Expenses relating to an Illegal Businesses?

Back 29

o Disallows a deductions for fines, bribes to public officials, illegal kickbacks and other illegal payments

Exception:
Drug dealers are NOT allowed a deduction for ordinary and necessary business expenses incurred in their businesses. However, dealers may reduce total sales by the COGs.

Front 30

T.6.27

What is the rule in "INVESTIGATION OF A BUSINESS"?

Back 30

When TP is NOT in a bus that is the same as or similar to the one being investigaged, the TP result depends on whether the new business is acquired. If NOT, all investigation exp generally are NONdeductible.

Front 31

T.6.28

What is the def. of "HOBBY LOSSES (6-18)"?

Back 31

Hobby: profit-seeking or personal attributes

Front 32

T.6.29

What are "General Rules for Hobby Losses"?

Back 32

- Whether the activity is conducted in a businesslike manner
- The expertise of the TP or their advisers
- The time & effort expended
- The expectation that the assets of activity will appreciate in value
- The history of income or losses from the activity
- The relationship of profits earned to losses incurred.
- The fin status of the aTP (e.g., if the TP does not have substantial amts of o.t. income, this may indicate that the activity is engaged in for profit.)
- Elements of personal pleasure or recreation in the activity

Front 33

T.6.30
What is
"Presumptive Rule of Code 183" in Hobby?

Back 33

- Profit seeking (Bus or Trade) if a profit in @ least 3 of any 5 prior consecutive yrs (Profitability Test)

Front 34

T.6.31

How do we "Determine the amt of the deduction (for a hobby)"?

Back 34

- Deductible only to the extent of the GI from the hobby
- Amts deductive under other Code sec w/out regard to the nature of the activity (property taxes and home mortgage int)
- Amts deductible under other Code sections if the activity had been engaged in for profit, but only if those amts do not affect adjusted basis. (e.g. maintenance, utilities, and supplies)
- Amts that affect adj basis and would be deductible under other Code sec if the activity had been engaged in for profit. (depreciation, amortization, and depletion)

Front 35

T.6.32

What is the limitation in using "Hobby" for deduction?

Back 35

(deductible “from AGI” as itemized: excess of 2 % of AGI; not benefit from using std deduction)

Front 36

T.6.33

What are "3 classifications in RENTAL OF VACATION HOMES (6-20)"?

Back 36

Primarily Personal Use
Primarily Rental Use
Personal/Rental Use

Front 37

T.6.34

What elements are based on to classify "RENTAL OF VACATION HOMES (6-20)"?

Back 37

relative time the residence is used for personal vs. rental purposes

Front 38

T.6.35

What is the def. of "Primarily Personal Use" in RENTAL OF VACATION HOMES?

Back 38

- Residence is rented for fewer than 15 days in a year (personal & exclusive from GI); mortgage int & real estate taxes: itemized OK BUT NO other expenses, eg depreciation, utilities & maintenance

Front 39

T.6.36

What is the def. of "Primarily Rental Use" in RENTAL OF VACATION HOMES?

Back 39

- Rented for 15 days or more in a year &
is NOT used for personal purpose for more than the greater of (1) 14 days or (2) 10% of the total days rented
- Must be allocated between personal & rental days
- Loss from the rental days MAY be deductive

Front 40

T.6.37

What is the def. of "Personal/Rental Use" in RENTAL OF VACATION HOMES?

Back 40

- If rented for 15 days or more in a year &
Is used for personal purpose for more than the greater of (1) 14 days or (2) 10% of the total days rented
- Exp: allowed only to the extent of rent income

Front 41

T.6.38

In what order, deduction takes pl. in RENTAL OF VACATION HOMES (6-20)?

Back 41

1. Expenses deductible: RE taxes
2. Maintenance
3. depreciations
disallowed expenses allocable to rental use: carried fwd & used in future years (keeping the same rules)

Front 42

T.6.39

What items can be exceptions to "DISALLOWANCE OF PERSONAL EXPENDITURES (6-26)"?

Back 42

- Mostly no deductions allowed; however, the legal fees for divorce advice is OK; advisable to request an itemization of attorney’s fee

Front 43

T.6.40

Explain DISALLOWANCE OF DEDUCTIONS FOR CAPITAL EXPENDITURES (6-26):

Capitalization vs. Expenses

Back 43

o When an expenditure is capitalized rather than expensed, the deduction is @ best deferred and @ worst lost forever. (cost may be deductible in increments over a longer period of time.)

Front 44

T.6.41

What can be part of "TRANSACTIONS BETWEEN RELATED PARTIES (6-27)"?

Back 44

- Unpaid Expenses and Interest
- Relationships and Constructive Ownership

Front 45

T.6.42

Give an eg of SUBSTANTIATION REQUIREMENTS (6-29)

Back 45

charitable contributions: stringent substantiation req
cash contributions: supported by receipts (cancelled checks)
filing Form 8283 and appraisals for donation of property: $500 or more