© copyright 2001-2009 by m. ray gregg. all rights reserved. 1 federal income tax business related...
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![Page 1: © Copyright 2001-2009 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax Business Related Deductions](https://reader035.vdocument.in/reader035/viewer/2022081519/56649f445503460f94c6571d/html5/thumbnails/1.jpg)
© Copyright 2001-2009 by M. Ray Gregg. All rights reserved.
1
Federal Income Tax
Business Related Deductions
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© Copyright 2001-2009 by M. Ray Gregg. All rights reserved.
2
Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses
• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)
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© Copyright 2001-2009 by M. Ray Gregg. All rights reserved.
3
Automobile Expenses
• Choose larger of– Actual costs (business use)– Standard mileage rate allowed
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4
Automobile Expenses
Business $.??
Moving
Medical
Charitable
Contribution
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5
Automobile Expenses
Business $.555 pg 9 – 11
Moving
Medical
Charitable
Contribution
Note prev yrs’ amts: ’01 = $.345 ’02 = $.365 ’03 = $.36’04 = $.375
’05 = $.405 $.485’06 = $.445’07 = $.485’08 = $.505 $.585’09 = $.55’10 = $.50’11 = $.51 $.555
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6
Automobile Expenses
• Choose larger of– Actual costs (business use)– Standard mileage rate allowed
• Problem 9 – 60
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7
Automobile Expenses
• Choose larger of– Actual costs (business use)– Standard mileage rate allowed
• Problem 9 – 60
Standard Actual
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8
Problem 9 - 60
StandardBusiness Miles 24,000
x Std Rate $ .555
Sub-total $13,320
Parking & Tolls 100
Total STD Mileage Allowance $13,420
Actual
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Problem 9 - 60Actual
Gas & Oil$ 9,000Repairs1,400 Depreciation4,700Insurance & License 1,300Total to Apportion$16,400x Bus Use 60%Sub-total$ 9,840Exp NOT Apportioned 100Total ACTUAL Costs$ 9,940
Standard
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Problem 9 - 60
Standard vs. Actual
Total STANDARD Costs $13,420
Total ACTUAL Costs $ 9,940
Choose Larger $13,420
Less: Reimbursement 9,600
Deductible Amount $ 3,820
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© Copyright 2001-2009 by M. Ray Gregg. All rights reserved.
11
Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses
• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)
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12
Entertainment Expenses
• “Directly Related”
• “Associated With”
• See page 9-14
• Substantiation
• Not lavish or extravagant
• 50%
• Problem 9 - 20
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© Copyright 2001-2009 by M. Ray Gregg. All rights reserved.
13
Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses
• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)
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© Copyright 2001-2009 by M. Ray Gregg. All rights reserved.
14
Moving Expenses
• General Requirements– Must move 50 miles– Must stay in new location 39 weeks– Only “direct” expenses deductible
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15
Moving Expenses
• Prior to 1981– expenses classified as “direct” and
“indirect”– “direct” costs fully deductible; limits on
“indirect” costs– costs (in excess of reimbursement)
deductible FOR A.G.I.
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16
Moving Expenses
• 1981 – 1996– direct and indirect costs deductible FROM– reimbursement included in Gross Income
• Present Law– only DIRECT costs deductible– costs deductible FOR A.G.I.
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17
Moving Expenses
• 1981 – 1996– direct and indirect costs deductible FROM– reimbursement included in Gross Income
• Present Law– only DIRECT costs deductible– costs deductible FOR A.G.I.
• Problem 9 – 64
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18
Automobile Expenses
Business $.555 pg 9 – 11
Moving $.??
Medical
Charitable
Contribution
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19
Automobile Expenses
Business $.555 pg 9 – 11
Moving $.23 pg 9 – 20
Medical
Charitable
Contribution
Note prev yrs:
$.12 in 2001 $.13 in 2002 $.12 in 2003$.14 in 2004$.15$.22 in 2005$.20 in 2007$.19 in 2008$.24 in 2009$.165 in 2010$.19 in 2011$.235
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© Copyright 2001-2009 by M. Ray Gregg. All rights reserved.
20
Automobile Expenses
Business $.555 pg 9 – 11
Moving $.23 pg 9 – 20
Medical
Charitable
Contribution
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21
Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses
• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)
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© Copyright 2001-2009 by M. Ray Gregg. All rights reserved.
22
Education Expenses
• Ways for education costs to be deductible:– Required by law– Required by employer– Maintain or improve skills
• Problem 9 – 26
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Problem 9 - 26
CPA Review $ 400
Law School 4,000
Continuing Education 600
$5,000
$500
Deductible FROM – Tier 2
New trade or business
personal
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24
Education Expenses
• Ways for education costs to be deductible:– Required by law– Required by employer– Maintain or improve skills
• Problem 9 – 26
• Problem 9 – 27
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Problem 9 - 27
• Teachers generally allowed?– Sometimes required by law or employer– Maintain and improve skills
• New trade or business?– elementary to secondary?– biology to art?– classroom to counselor?– teacher to principal?
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26
Education Expenses
• Ways for education costs to be deductible:– Required by law– Required by employer– Maintain or improve skills
• Problem 9 – 26• Problem 9 – 27• Problem 9 – 65
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27
Problem 9 - 65a. Law school?
• Not deductible – new trade or bus
b. Self-employed accountant?• $1,800 FOR
c. MBA for executive?• $5,000 FROM, Tier 2
d. Graduate courses for teacher?• $1,000 FROM, Tier 2
e. Bar review for recent grad?• Not deductible – personal
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Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses
• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)
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© Copyright 2001-2009 by M. Ray Gregg. All rights reserved.
29
Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses
• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)
![Page 30: © Copyright 2001-2009 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax Business Related Deductions](https://reader035.vdocument.in/reader035/viewer/2022081519/56649f445503460f94c6571d/html5/thumbnails/30.jpg)
© Copyright 2001-2009 by M. Ray Gregg. All rights reserved.
30
Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses
• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)
![Page 31: © Copyright 2001-2009 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax Business Related Deductions](https://reader035.vdocument.in/reader035/viewer/2022081519/56649f445503460f94c6571d/html5/thumbnails/31.jpg)
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31
Home Office Expenses
• Controversial
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Home Office Expenses
• Controversial• Requirements:
– “exclusive use”– principal place of business (1998)– meetings with customers/clients etc.– separate structure?– “convenience of the employer”
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Home Office Expenses
• Qualifications?
• Problem 9 – 28 – (do b, a, then c)
• What’s deductible?
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http://www.irs.gov/pub/irs-pdf/p587.pdf
Pub. 587page 7
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Publication 587, page 7
http://www.irs.gov/pub/irs-pdf/p587.pdf
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What’s Deductible?
Business Income xxxx
Less: Regular Business Expenses x
Sub-Total xxx
Home Office Exp Deductible Anyway x
Sub-Total xx
Less: Other Home Office Expenses x
Net Income x
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See Sch C, page B-21
09
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Form 8829
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Home Office Expenses
• Qualifications?
• Problem 9 – 28 – (do b, a, then c)
• What’s deductible?
• Problem 9 – 67
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Problem 9 – 67
• Studio deductible?
• Den deductible?
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Problem 9 – 67
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Problem 9 – 67
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Problem 9 – 67
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Problem 9 – 67
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Problem 9 – 67
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Problem 9 – 67 (a)Real Estate Taxes $2,000Mortgage Interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000
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Problem 9 – 67 (a)Real Estate Taxes $2,000Mortgage interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000
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Problem 9 – 67 (a)Real Estate Taxes $2,000Mortgage Interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000
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Problem 9 – 67
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Problem 9 – 67
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Problem 9 – 67
Now What?
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Problem 9 – 67Real Estate Taxes $2,000Mortgage interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000
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Problem 9 – 67 (b)Real Estate Taxes $2,000Mortgage Interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000
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Problem 9 – 67
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Problem 9 – 67 (a)Real Estate Taxes $2,000Mortgage Interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000
Note: 90% of these deductible as itemized deductions.
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Problem 9 – 67 (b)
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Problem 9 – 67 (b)Income $2,500Exp of Business 2,000Sub-total $ 500Exp Ded AnywaySub-total
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Problem 9 – 67 (b)Real Estate Taxes $2,000Mortgage Interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000
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Problem 9 – 67 (b)Real Estate Taxes $2,000Mortgage Interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000
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Problem 9 – 67 (b)Income $2,500Exp of Business 2,000Sub-total $ 500Exp Ded Anyway 700Sub-total ($ 200)Other Home Exp -0- Net Income (Loss) ($ 200)
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Problem 9 – 67 (b)
Excess Direct Exp $200
10% of other Exp of Home ???
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Problem 9 – 67 (b)Real Estate Taxes $2,000Mortgage Interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000
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Problem 9 – 67 (b)
Carryover
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Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses
• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)
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Business Expenses
• Self-employed–“for”
• Employee–Reimbursed?
•Yes = “for”•No = “from”
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Reimbursements
• References– Text Table 9 - 2, page 9 - 18
– Publication 17, YFIT, Table 26 - 3 195
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Plans
•Accountable
•Non-Accountable
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Plans
•Accountable
•Non-Accountable
Recommend
Problem 9 - 13
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Reimbursements
• Problem 9 - 57
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Problem 9 – 57
In Textbook
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Problem 9 – 57
Reimbursed
$3,000$5,000
60%
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Problem 9 – 5760% 40%
Reimb NonProf dues & Subs 1,000Airfare & Lodging 2,000Local transportation 1,000Entertainment 1,000
5,000
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Problem 9 – 5760% 40%
Reimb NonProf dues & Subs 1,000 600 400Airfare & Lodging 2,000Local transportation 1,000Entertainment 1,000
5,000
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Problem 9 – 5760% 40%
Reimb NonProf dues & Subs 1,000 600 400Airfare & Lodging 2,000 1,200 800Local transportation 1,000Entertainment 1,000
5,000
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Problem 9 – 5760% 40%
Reimb NonProf dues & Subs 1,000 600 400Airfare & Lodging 2,000 1,200 800Local transportation 1,000 600 400Entertainment 1,000
5,000
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Problem 9 – 5760% 40%
Reimb NonProf dues & Subs 1,000 600 400Airfare & Lodging 2,000 1,200 800Local transportation 1,000 600 400Entertainment 1,000 600 400
5,000
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Problem 9 – 5760% 40%
Reimb NonProf dues & Subs 1,000 600 400Airfare & Lodging 2,000 1,200 800Local transportation 1,000 600 400Entertainment 1,000 600 400
5,000 3,000 2,000
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Problem 9 – 5760% 40%
Reimb NonProf dues & Subs 1,000 600 400Airfare & Lodging 2,000 1,200 800Local transportation 1,000 600 400Entertainment 1,000 600 400
5,000 3,000 2,000
$200
$1,800
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Text Page 9 – 47
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Another Approach
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4,000 1,000
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Another Approach
4/5 = 80% 1/5 = 20%
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Another Approach
4/5 = 80% 1/5 = 20%
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Another Approach
4/5 = 80% 1/5 = 20%
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Another Approach
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Another ApproachAll Except Meals &
Meals & Ent Ent
4,000 1,000Reimb 3,000 2,400 600
1,600 400Less: 50% 200
1,600 200
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Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses
• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)
ItemizedDeductions
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Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses
• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)
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Hobby Losses
• Criteria• Consequences• Order of deductible expenses
– Tier 1: deductible anyway (itemized)– Tier 2: other exp (not reduce basis)– Tier 3: expenses that reduce basis
• Problems 6 - 54 and 6 - 55
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Problem 6 – 54 Gross Income 1,100
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Problem 6 – 54Gross Income 1,100Less: Property taxes 300
800Less: Feed & Vet fees 800
0
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Problem 6 – 54Gross Income 1,100Less: Property taxes 300
800Less: Feed & Vet fees 800
0Less: Depreciation (limited) 0Net Income 0
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Problem 6 – 54 Gross Income 1,500
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Problem 6 – 54 Gross Income 1,500Less: Property taxes 300
1,200
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Problem 6 – 54 Gross Income 1,500Less: Property taxes 300
1,200Less: Feed & Vet fees 1,100
100
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Problem 6 – 55Gross Income 1,500Less: Property taxes 300
1,200Less: Feed & Vet fees 1,100
100Less: Depreciation (limited) 100Net Income 0
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