24211_ch08_final_p001-018

24211_ch08_final_p00 - 8 Employee Business Expenses Solutions to Problem Materials DISCUSSION QUESTIONS 8-1 Whether the advice J has received is

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Employee Business Expenses Solutions to Problem Materials D ISCUSSION Q UESTIONS 8-1 Whether the advice J has received is correct depends primarily on his current situation and the purpose of the education expenses. Educational expenses that are related to a taxpayer s current trade or business are normally deductible under the general rules of § 162. The Regulations specifically state that the education must either maintain or improve the skills required by the taxpayer in his or her current employment or business, or be required by the employer, or law, to keep the taxpayer s present job, position, or salary. In addition, to prohibit taxpayers from deducting the costs of basic education (which prepares them to enter the business world), the education must not enable the taxpayer to enter a new trade or business or meet the minimum education requirements of the taxpayer s trade or business. (See pp. 8-2 through 8-4.) Notwithstanding these rules, beginning in 2002, § 222 enables a deduction for qualified tuition and related expenses incurred in connection with enrollment or attendance at an eligible educational institution . Only qualified tuition and related expenses may be deducted. This definition normally includes the tuition and fees charged by most universities. It should be noted, however, that fees for course-related books, supplies, and equipment normally do not qualify. Similarly, the costs of insurance, medical expenses (including student health fees), room and board, transportation, or similar personal, living, or family expenses do not qualify. The amount of the deduction is $4,000 and may be claimed for A.G.I. However, the deduction is phased out for single taxpayers with modified adjusted gross income exceeding $65,000 ($130,000 for joint filers). (See pp. 8-5 through 8-6.) Finally, J should be advised that the expenses qualify for the Hope Scholarship or the Lifetime Learning Credits. However, he cannot double dip. Any expenses for which the credits are claimed cannot be deducted. (See pp. 8-6 through 8-7.) 8-2 a. Beginning in 2002, § 222 enables a deduction for qualified tuition and related expenses incurred in connection with enrollment or attendance at an eligible educational institution . This definition normally includes the tuition and fees charged by most universities. It should be noted, however, that fees for course-related books, supplies, and equipment normally do not qualify. Similarly, the costs of insurance, medical expenses (including student health fees), room and board, transportation, or similar personal, living, or family expenses do not qualify. The amount of the deduction is $4,000 and may be claimed for A.G.I. However, the deduction is phased out for single taxpayers as modified adjusted gross income begins to exceed $65,000 ($130,000 for joint filers). Only qualified tuition and related expenses may be deducted. (See pp. 8-5 through 8-6.) Absent § 222 discussed above, Y would clearly face an uphill battle should she be required to justify her deduction. The costs of a bachelor
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This note was uploaded on 02/05/2012 for the course ACCT 110 taught by Professor Smith during the Spring '11 term at Adrian College.

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24211_ch08_final_p00 - 8 Employee Business Expenses Solutions to Problem Materials DISCUSSION QUESTIONS 8-1 Whether the advice J has received is

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