CHAPTER 7: Deduction and Losses: Certain Business Expenses and Losses
BAD DEBT DEDUCTION:
Before a T/P can take a bad debt deduction related to the sale of goods or services, the amount of
the account receivable must already have been included in income (
CHAPTER 4: Gross Income: Concepts and Inclusions
Section 61(a) of the Internal Revenue Code:
Except as otherwise provided in this subtitle, gross income means all income from whatever source
In other words, all income received (reali
CHAPTER 6: Deduction and Losses: In General
Look at Concept Summary 6-3.
DEDUCTIONS "FOR AGI":
Expenses incurred in a trade or business (Schedule C).
Reimbursed employee business expenses (Form 2106).
Deductions arising from losses on the sale or exchange
CHAPTER 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable Exchanges
REALIZED GAIN OR LOSS:
Realized gains or losses occur upon the disposition of the T/P's property.
"Disposition" includes sales, trade-ins, the
CHAPTER 8: Depreciation, Cost Recovery, Amortization, and
Depreciation (cost recovery) deductions are allowed for trade or business property and property
used in the production of income.
Real property is land and everything permanently attached
CHAPTER 9: Deductions: Employee Expenses
EMPLOYEE OR SELF-EMPLOYED?
If the T/P is self-employed (operates a trade or business), deductions are "for" AGI.
A self-employed T/P files a Schedule C along with the Form 1040. All deductions included on
CHAPTER 10: Deductions and Losses: Certain Itemized Deductions
Expenses of medical care for the T/P, spouse and dependents (note special rule) are itemized deductions
to the extent not reimbursed by medical insurance AND to the extent
CHAPTER 5: Gross Income: Exclusions
Taxable income includes all income received by the T/P that is not specifically excluded.
LIST SOME EXAMPLES
1. Donative items
2. Personal and welfare items
3. Wage and salary supplements
4. Investor items
CHAPTER 12: Tax Credits
Tax credits allow a dollar-for-dollar reduction in the amount of regular tax liability. Therefore,
tax credits are more valuable to the T/P than a deduction of the same dollar amount.
Refundable tax credits are refunded to the T
CHAPTER 15: Alternative Minimum Tax
First Compute taxable income and the regular tax.
Then Compute the tentative AMT.
Pay Larger of the regular tax or the regular tax the net AMT (i.e., pay the tentative AMT).
The AMT formula:
Regular Taxable Income
Chapter 11: Passive Activity Losses
What a tax shelter was/is-Give an example
Passive loss rules require income to be separated into three types of income:
Passive losses are subject to both the at-risk limits and
CHAPTER 14: Property Transactions: Capital Gains and Losses, Section 1231, and
A T/P's personal use property and property held for investment are capital assets. A capital asset is any
property owned by the T/P except:
CHAPTER 3: Tax Determination; Personal and Dependency
Exemptions; An Overview of Property Transactions
BASIC TAX FORMULA [Fig. 3-1]:
Income (broadly conceived)
GROSS INCOME (all income, less exclusions)
Less: Deductions fo