Week4.Lecture.Chapter6 - Chapter 6...

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Chapter 6 Deductions and Losses: In General
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C6 - C6 - 2 Deductions FOR and FROM AGI (slide 1 of 3) Deductions FOR AGI Can be claimed even if taxpayer does not itemize Important in determining the amount of certain itemized deductions Certain itemized deductions are limited to amounts in excess of specified percentages of AGI e.g., Medial expenses (7.5% of AGI), misc. itemized deductions ( 2% of AGI)
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C6 - C6 - 3 Deductions FOR and FROM AGI (slide 2 of 3) Deductions FROM AGI: In total, must exceed the standard deduction to provide any tax benefit Called “below the line” or itemized deductions
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C6 - C6 - 4 Deductions FOR and FROM AGI (slide 3 of 3) Comparison of deductions FOR and FROM AGI (2007 tax year) Single taxpayer has gross income of $45,000 and a $6,000 deduction For AGI From AGI Gross income $45,000 $45,000 Less: for AGI ded. 6,000 0 AGI $39,000 $45,000 Less: from AGI ded. 5,350 6,000 Less: personal exempt. 3,400 3,400 Taxable income $30,250 $35,600
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C6 - C6 - 5 Deductions for AGI (slide 1 of 2) Partial list includes: Trade or business expenses Deductions from losses on sale or exchange of property (limited though) Deductions from rental and royalty property Alimony One-half of self-employment tax paid
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C6 - C6 - 6 Deductions for AGI (slide 2 of 2) Partial list includes: 100% of health insurance premiums paid by a self-employed individual Contributions to pension, profit sharing, annuity plans, traditional IRAs, etc. Early withdrawal penalties (savings accounts) Moving expenses Interest on student loans
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C6 - C6 - 7 Deductions from AGI Itemized deductions include: Medical expenses (in excess of 7.5% of AGI) Certain state and local taxes Contributions to qualified charitable organizations Personal casualty losses (in excess of 10 % of AGI and a $100 floor per casualty) Certain personal interest expense (e.g., mortgage interest on a personal residence) Miscellaneous itemized deductions (in excess of 2% of AGI)
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C6 - C6 - 8 Trade or Business Deductions Section 162(a) permits a deduction for all ordinary and necessary expenses paid or incurred in carrying on a trade or business including: Reasonable salaries paid for services Expenses for the use of business property One-half of self-employment taxes paid Such expenses are deducted for AGI
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C6 - C6 - 9 Expenses Related to the Production of Income Deductions for ordinary and necessary expenses paid or incurred for the following: The production or collection of income (i.e.
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  • Spring '08
  • Gadner
  • Expenses, Expense, Taxation in the United States, Generally Accepted Accounting Principles, Operating expense

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