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CHAPTER 10 DEDUCTIONS AND LOSSES: CERTAIN ITEMIZED DEDUCTIONS LECTURE NOTES IN GENERAL 1. Personal Deductible Expenses . Chapter 10 is principally concerned with expenses that are essentially personal in nature but which are deductible due to legislative grace . 2. Business Expenses versus Itemized Deductions . It is important to understand the differences between business expenses , expenses incurred for the production of income , and itemized deductions . a. Business expenses are deductible under § 162 and are deductions for AGI . Individual taxpayers who are engaged in a trade or business deduct business expenses on Schedule C of Form 1040. b. Generally, expenses incurred for the production of income are itemized deductions under § 212, and are reported on Schedule A. However , expenses related to the production of rent or royalty income are deductions for AGI and are reported on Schedule E. c. Itemized deductions that are not related to the production of income include, but are not limited to, medical expenses, state and local income and sales taxes, home mortgage and investment interest, casualty losses, charitable contributions, and miscellaneous itemized deductions. 3. Itemized Deductions versus Standard Deduction . Itemized deductions are deducted from AGI if they exceed the taxpayer’s standard deduction. If itemized deductions do not exceed the standard deduction, they are “lost” because they do not produce a tax benefit. 10-1
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10-2 2009 Comprehensive Volume/Instructor’s Guide with Lecture Notes MEDICAL EXPENSES 4. Allowable Medical Expenses (see Exhibit 10-1 in the text) a. Medical expenses include all preventive and diagnostic measures . Thus, the cost of an annual physical exam qualifies even though the taxpayer is in good health. b. Cosmetic surgery (e.g., face lifts, hair transplants) for unnecessary cosmetic surgery is not deductible . Necessary (and therefore deductible) cosmetic surgery includes procedures that ameliorate : (1) a deformity arising from a congenital abnormality; (2) a personal injury resulting from accident or trauma; or (3) a disfiguring disease. c. Nursing services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. d. See Table 10-1 for “Medical and Dental Expenses Checklist” appearing at the end of the Lecture Notes for this chapter. The checklist gives numerous items that are deductible and nondeductible. 5. Effect of Physician Recommendation . Although the recommendation of a doctor is important, it is not controlling in so far as the deductibility of an expenditure is concerned. Suppose, for example, a child psychiatrist recommends a private school in order to alleviate the learning disorder of a taxpayer’s child. By itself, this does not make the tuition paid to the private school deductible as a medical expense. a.
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This note was uploaded on 03/17/2009 for the course ACC 483 taught by Professor Susankuniyoshi during the Spring '08 term at University of Phoenix.

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