Acct411Y07ch8notes - Chapter 8 Notes Itemized Deductions...

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Chapter 8 Notes Itemized Deductions Generally The major categories of itemized deductions are medical, taxes, interest, personal casualty losses, charitable contributions, and two categories of miscellaneous itemized deductions. Itemized deductions are mostly deductions of a personal nature allowed by the grace of Congress. Exceptions would be unreimbrused (or under-reimbursed) employee business expenses and investment expenses other than those allocable to rents and royalties. Most of the employment and investment related expenses would fall into the Miscellaneous Itemized Deductions Subject to the 2% Adjusted Gross Income category although investment interest expense, if applicable, is deducted in the Interest category. Medical 1) Allowed only in excess of 7.5% of AGI 2) No cosmetic surgery unless necessary 3) Portion or all of nursing home expenses are deductible depending upon whether the person’s confinement to the nursing home is necessary for medical reasons. If residence isn’t strictly necessary for medical reasons (person doesn’t need full-time care), then only a portion of the expenses allocable to the medical services is deductible. 4) Capital expenditures allowed If necessary and it does not lend itself to personal use other than medical (ex. Handicap facilities) deductible in full; otherwise, only to the extent that the cost exceeds the increase in market value (an appraisal for this purpose is miscellaneous 2% deduction) 5) Transportation, meals, lodging 50% cutback on meals, lodging (not hospital room) only to $50 per day, auto transportation to treatments at a flat per mile charge (which is lower than the business mileage charge) is allowed 6) Noncustodial parent may take medical expenses for child if paid 7) Medical insurance – premiums can be taken as itemized medical deduction but self-employed now allowed 100% of premiums as deduction for AGI 8) Reimbursements – medical expenses must of course be reduced by reimbursements; a reimbursement received for a deduction in a prior year is, of course, taxable under the tax benefit rule Taxes - not fees (State and local governments also charge fees for government services but these are considered specific charges for individual benefits and are not deductible.)
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1) State, local, and foreign (if foreign tax credit not used) income taxes It is the position of the IRS that state income taxes imposed on an individual are deductible only as itemized deductions even if the taxpayer’s sole source of income is from business, rents, or royalties. 2) Personal property (if based on the value of the property)
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Acct411Y07ch8notes - Chapter 8 Notes Itemized Deductions...

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