© copyright 2001-2009 by m. ray gregg. all rights reserved. 1 federal income tax business related...

Federal Income Tax

Business Related Deductions

Chapter 9• Travel and Transportation• Automobile Expenses• Entertainment• Moving Expenses

• Education Expenses• Home Office• Reimbursements• Hobby losses (from Chap 6)

Automobile Expenses

• Choose larger of– Actual costs (business use)– Standard mileage rate allowed

Automobile Expenses

Business $.??

Moving

Medical

Charitable

Contribution

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

Automobile Expenses

• Problem 9 – 60

Automobile Expenses

Standard Actual

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

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

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

Entertainment Expenses

• “Directly Related”

• “Associated With”

• See page 9-14

• Substantiation

• Not lavish or extravagant

• 50%

• Problem 9 - 20

Moving Expenses

• General Requirements– Must move 50 miles– Must stay in new location 39 weeks– Only “direct” expenses deductible

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.

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.

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.

Automobile Expenses

Moving $.??

Medical

Charitable

Contribution

Automobile Expenses

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

Automobile Expenses

Moving $.23 pg 9 – 20

Medical

Charitable

Contribution

Education Expenses

• Ways for education costs to be deductible:– Required by law– Required by employer– Maintain or improve skills

Problem 9 - 26

CPA Review $ 400

Law School 4,000

Continuing Education 600

$5,000

Deductible FROM – Tier 2

New trade or business

personal

Education Expenses

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?

Education Expenses

• Problem 9 – 26• Problem 9 – 27• Problem 9 – 65

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

Home Office Expenses

• Controversial

• Controversial• Requirements:

– “exclusive use”– principal place of business (1998)– meetings with customers/clients etc.– separate structure?– “convenience of the employer”

• Qualifications?

• Problem 9 – 28 – (do b, a, then c)

• What’s deductible?

http://www.irs.gov/pub/irs-pdf/p587.pdf

Pub. 587page 7

Publication 587, page 7

http://www.irs.gov/pub/irs-pdf/p587.pdf

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

See Sch C, page B-21

Form 8829

• Qualifications?

• Problem 9 – 28 – (do b, a, then c)

• What’s deductible?

Problem 9 – 67

• Studio deductible?

• Den deductible?

Problem 9 – 67

Problem 9 – 67 (a)Real Estate Taxes $2,000Mortgage Interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000

Problem 9 – 67 (a)Real Estate Taxes $2,000Mortgage interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000

Problem 9 – 67

Now What?

Problem 9 – 67Real Estate Taxes $2,000Mortgage interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000

Problem 9 – 67 (b)Real Estate Taxes $2,000Mortgage Interest 5,000Insurance 500Depreciation 3,500Repairs and Utilities 1,000Total $12,000

Problem 9 – 67

Note: 90% of these deductible as itemized deductions.

Problem 9 – 67 (b)

Problem 9 – 67 (b)Income $2,500Exp of Business 2,000Sub-total $ 500Exp Ded AnywaySub-total

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)

Excess Direct Exp $200

10% of other Exp of Home ???

Carryover

Business Expenses

• Self-employed–“for”

• Employee–Reimbursed?

•Yes = “for”•No = “from”

Reimbursements

• References– Text Table 9 - 2, page 9 - 18

– Publication 17, YFIT, Table 26 - 3 195

•Accountable

•Non-Accountable

•Accountable

•Non-Accountable

Recommend

Problem 9 - 13

Reimbursements

• Problem 9 - 57

Problem 9 – 57

In Textbook

Problem 9 – 57

Reimbursed

$3,000$5,000

Problem 9 – 5760% 40%

Reimb NonProf dues & Subs 1,000Airfare & Lodging 2,000Local transportation 1,000Entertainment 1,000

Problem 9 – 5760% 40%

Reimb NonProf dues & Subs 1,000 600 400Airfare & Lodging 2,000Local transportation 1,000Entertainment 1,000

Problem 9 – 5760% 40%

Reimb NonProf dues & Subs 1,000 600 400Airfare & Lodging 2,000 1,200 800Local transportation 1,000Entertainment 1,000

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

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

Problem 9 – 5760% 40%

5,000 3,000 2,000

Problem 9 – 5760% 40%

5,000 3,000 2,000

$1,800

Text Page 9 – 47

Another Approach

4,000 1,000

Another Approach

4/5 = 80% 1/5 = 20%

Another Approach

4/5 = 80% 1/5 = 20%

Another Approach

4/5 = 80% 1/5 = 20%

Another Approach

Another ApproachAll Except Meals &

Meals & Ent Ent

4,000 1,000Reimb 3,000 2,400 600

1,600 400Less: 50% 200

1,600 200

ItemizedDeductions

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

Problem 6 – 54 Gross Income 1,100

Problem 6 – 54Gross Income 1,100Less: Property taxes 300

800Less: Feed & Vet fees 800

0Less: Depreciation (limited) 0Net Income 0

Problem 6 – 54 Gross Income 1,500

Problem 6 – 54 Gross Income 1,500Less: Property taxes 300

1,200Less: Feed & Vet fees 1,100

100Less: Depreciation (limited) 100Net Income 0

© copyright 2001-2009 by m. ray gregg. all rights reserved. 1 federal income tax business related...

ray gregg

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