20111003 Chat Mon Cpt 6

20111003 Chat Mon Cpt 6 - Chat Monday t he 3rd of Oct ober...

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Chat Monday the 3rd of October, 201 Question Chapter 6 Deductions: General Concepts and Trade or Busines Deductions ¶6805 Busines Use of Pas enger Cars MACRS ap lies for determining depreciation for busines use pas enger cars placed in service after 1986. Taxpayers who use the actual cost method for claiming deductions in lieu of the standard mileage rate are subject to specifi c limits on the depreciation amount (adjusted an ual y for infl ation) that they can claim for cars in any particular year. P6-24 p6-24 6805 Part Busines /Part Personal Expenses 24. The amount of Al’s car expense deduction on his cur ent year tax return is $5,6 7. Al would use the fol owing formula for computing car expenses deductible as busines -related expenses. Busines Miles 10,0 0 busines miles X $10,20 car expense = $5,6 7 18,0 0 total miles The standard mileage al owance would only provide an al owance of $5,0 0 (10,0 0 busines miles × $.50 per mile). Trade or Busines Deductions ¶6201 Overview—Code Sec. 162 Under Code Sec. 162, al ordinary, neces ary and reasonable expenses incur ed in car ying on a trade or busines activity are deductible. This is true whether the taxpayer’s busines activities are structured as a sole proprietor, a partnership, or a corporation. Al owable trade or busines expenses incur ed by individuals are deductible “for” AGI, usual y on Schedule C, at ached to Form 1040. Expenses Incur ed for the Production of Income ¶6301 Code Sec. 212—Production Of Income Or Protection Of As ets Production of income expenses are deductible if they are incur ed: (1) For the production or col ection of income; (2) For the management, conservation, or maintenance of property held for the production of income; or (3) In con ection with the determination, col ection, or refund of any tax. Expenses related to the production of income consist primarily of those expenses incur ed in rental and investment activities as wel as tax plan ing and compliance expenses. Like trade or busines expenses, production of income expenses must be ordinary, neces ary, and reasonable. Unlike trade or busines expenses, expenses related to the production of income are deductible as miscel aneous itemized deductions with the exception of rents and royalty expenses which are deductible for AGI on Schedule E. Code Sec. 62(a)(4). Limitations on the Deductibility of Expenses ¶6701 Certain Deductions Limited or Disal owed Some provisions of the Code specifi cal y prohibit or limit the deduction of certain expenses and los es despite their ap arent relationship to the taxpayer’s busines or profi t se king activities P6-26 p6-26 6201, 6301, 6725 a T For AGI Schedule C b P From AGI Schedule A c T From AGI ? ? Trade Schedule A d T For AGI Schedule C e T From AGI Schedule A ¶6101 Deductions “For” vs. “From” AGI Busines and investment expenses are deductible “for” adjusted gros income. That is, they are deducted in computing a taxpayer’s AGI. In contrast, most personal expenses and los es, if deductible at al , are deductible
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20111003 Chat Mon Cpt 6 - Chat Monday t he 3rd of Oct ober...

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