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Day _12 ACIS3314 Spring 2011 Deductions for AGI

Day _12 ACIS3314 Spring 2011 Deductions for AGI - ACIS 3314...

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ACIS 3314, Day 12 1 Deductions 1: Deductions for AGI ACIS 3314 Tax Impact on Decisions Learning Objectives 1. Identify the common deductions necessary for calculating adjusted gross income (AGI) in the following categories: Directly related to profit-motivated activities Indirectly related to profit-motivated activities Deductions subsidizing specific activities 2. Distinguish between ―trade or business‖ and ―investment‖ activities. Overview of Expenses: Individuals Did the expenditure arise in a profit-motivated activity? Rental Activity ―Trade or Business‖ Activity Investment Activity Generally for AGI Self-Employment (SE) Tax For AGI No SE Tax From AGI 2% AGI Floor YES For AGI? From AGI? NO Non- Deductible Personal Expenses Specifically Allowed Deductions
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ACIS 3314, Day 12 2 § 162 Trade or Business Expenses Permits deduction of all ― ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business …‖ Five conditions must be met to qualify for a deduction 1. Expense (as opposed to a capital expenditure). 2. Ordinary 3. Necessary 4. Paid or incurred during the taxable year 5. Made to carry on a trade or business . § 162 Trade or Business Expenses Ordinary an expense is ordinary if it is Normal, usual, or customary in the type of business conducted by the taxpayer, and Not capital in nature.
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