Chapter 6 Notes.docx - Chapter 6 Notes: Individual...

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Chapter 6 Notes: Individual DeductionsFor or From AGIBusiness ActivitiesTrade or business activities require a relatively high involvement or effort from the taxpayerwhereas investment activities don’t requireEx:self-employed business activityInvestment ActivitiesInvestment activities involve investing in property for appreciation or for income payments.Ex:owning stocks (investment in a C corp), a partnership interest (flow-through entityincome), rentals and intangible assets that bring in royaltiesInvestments in educationActivity TypeDeduction for AGIDeduction fromAGINot DeductibleBusinessactivitiesSelf-employment businessexpensesN/AUnreimbursed employeebusiness expenseInvestmentActivitiesRental and Royalty ExpenseFlow-through entity lossCapital lossQualified education loaninterestInvestmentinterest expenseQualifiedBusiness IncomeDeduction (QBI)Other investmentexpensesWhen you work for someone else and costs are not reimbursed – used to create adeduction.like investment advisory fees (what you pay to Merrill Lynch) to manage your investment_ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _FOR AGI deductions for an investment activity you really care about:Expenses related to education – when making payments on loans (typically after yougraduate)2.Interest on qualified education loans for taxpayer, spouse, or dependent“qualified” – tuition and fees, books and expenses for enrollment, roomand board, and other necessary supplies/expenses such as travelMaximum of $2,500deduction, is phased out based on taxpayer incomeDon’t need to remember phase-out thresholds – but just FYI –if single (married filing jointly) make over $85,000($170,000) it is completely phased out and you get nodeduction for the interest you paid.Also, if married filing separately (regardless of income), notallowed to get this deduction.
Chapter 6 Notes: Individual DeductionsA FOR AGI deduction that does NOT really fit the business/investment activityframeworkAlimony paidOnly applies to divorce or separation agreement that is settled beforeDecember 31, 2018NO deduction allowed on alimony payments made for divorce orseparation agreement settled afterDecember 31, 2018Trade or business expenses paid during yearThe ordinaryand necessarybusiness expensesOnSchedule Cof Form 1040Expenses or losses from your business (e.g.

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Taxation in the United States

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