Tax 802 Ch. 11 Lecture Notes(1)

Tax 802 Ch. 11 Lecture Notes(1) - 1Chapter 11 ITEMIZED...

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1Chapter 11 ITEMIZED DEDUCTIONS LECTURE OUTLINE I. Introduction. A. Deductions allowed for certain investment expenses and personal expenditures are referred to as itemized deductions. B. Generally, itemized deductions are claimed only if they exceed the taxpayer’s standard deduction amount. Recall, however, that a married person filing separately must itemize deductions if his or her spouse itemizes. The taxpayer’s standard deduction amount depends on his or her filing status. The various standard deduction amounts are presented in Chapter 4. C. All itemized deductions are classified as deductions from A.G.I. D. Some itemized deductions are allowed only to the extent they exceed a percentage of A.G.I. (e.g., medical expenses and casualty losses). Others are limited as deductions up to a percentage of A.G.I. (e.g., charitable contributions). E. Since most individual taxpayers use the cash method for tax purposes, timing of itemized deductions can be an effective tax minimization planning effort. F. Itemized deductions are reported on Schedule A, Form 1040. The list below contains the most common types of itemized deductions and parallels Schedule A. 1. Medical expenses. 2. Taxes paid. 3. Interest expense. 4. Charitable contributions. 5. Casualty and theft losses. (Ch. 10) 6. Miscellaneous deductions. II. Medical expenses. A. What is deductible? 1. Amounts paid for the diagnosis, cure, relief, treatment, or prevention of a disease of the taxpayer, his or her spouse, and dependents. a. The status of the person as the taxpayer’s spouse or dependent must exist either at the time the medical services are rendered or at the time the expenses are paid. 1. Both the gross income test and the joint return test are waived for purposes of determining dependency status. 2. Medical expenses for children of divorced parents are deductible by the parent who pays for the expenses— regardless of which parent is entitled to the dependency exemption. b. Amounts must be paid in the year the expense is claimed. Credit card charges are treated as payments in the year the charge is made. 2. Deductions for medicines and drugs are limited to expenditures for insulin and prescribed drugs (note that over- the-counter drugs were eligible for reimbursement under Flexible Savings Accounts in 2010, which means they are deductible since taxable wages are reduced. They are not eligible for reimbursement starting in 2011 unless they are prescribed by a health care professional. There is an exception for insulin which does not require a prescription in most states). 3. Expenditures for special items and equipment purchased primarily for the prevention or alleviation of a physical or mental defect or illness qualify as medical deductions. 4.
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This note was uploaded on 04/03/2012 for the course TAX 802 taught by Professor Angelini during the Spring '12 term at Suffolk.

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Tax 802 Ch. 11 Lecture Notes(1) - 1Chapter 11 ITEMIZED...

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