Chat Monday the 3rd of October, 201
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
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.
10,0 0 busines miles
$10,20 car expense = $5,6 7
The standard mileage al owance would only provide an al owance of $5,0 0 (10,0 0 busines miles × $.50
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
6201, 6301, 6725
¶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