Acct411ch6notes - Chapter 6 Notes This chapter deals with...

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Chapter 6 – Notes This chapter deals with general concepts for allowance of deductions against taxable income. The broad categories of deductions are discussed in general terms. General prohibitions are also detailed. The chapter also contains some specifics on special cases of deductions. The ensuing chapters provide more detail on specific types of business, investment, and personal deductions. 1) Deductions for AGI (Dfor) and deductions from AGI (Dfrom) a) Dfors are primarily trade or business, certain investment (rents, royalties, and capital losses), and some personal (retirement contributions, alimony, moving expenses, and limited interest on student loans). b) Dfroms are also called itemized deductions. They are primarily personal, employment related, and some investment expenses other than rents, royalties, and losses from sales or exchanges of property Deductions for AGI are worth more than deductions from AGI for a number of reasons: a) Dfroms are only taken if they exceed the standard deduction. Taxpayers do not receive any net benefit from the amount of itemized deductions below the standard deduction. b) Dfroms may be in a category (like medical or miscellaneous itemized deductions subject to the 2% of AGI limitation) that may be limited in the amount that can provide a deduction. c) Dfors are less likely to be limited by the taxpayer’s AGI and Dfors lower the taxpayer’s AGI making it less likely that the taxpayer will face limits on deductions from AGI due to income level. 2) The general categories of deductions allowable to individuals Trade/business (general authority under Sec. 162), investment (general authority Sec. 212), personal (various sections) There exists a continuum, more or less, on the limitations of deductions across these categories. Legitimate trade/business deductions are too numerous to mention and are often trade/business specific so the code and regulations do not delineate every trade/business deduction that is allowable. Rather, the code and regs establish general principles of allowable and unallowable deductions while specifically addressing certain business expenditures and/or losses. Investment Expenses are categorized under Sec. 212: production and collection of income, management, collection , maintenance of property held for production of income; expenses related to determination and collection of tax. To the extent that these expenses relate to rents and royalties they are Dfors; otherwise they are generally
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Dfroms. Investment expenses are more limited than trade or business expenses but, unlike personal expenditures, are not strictly limited to expressed authority. However, there are more expressed restrictions upon deducting investment expenditures than on business expenditures. The code allows taxpayers to deduct certain expenditures of a personal nature from their
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This note was uploaded on 04/08/2008 for the course ACCT 411 taught by Professor Brennen during the Spring '08 term at Minnesota State University, Mankato.

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Acct411ch6notes - Chapter 6 Notes This chapter deals with...

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