Ch. 6 Individual Deductions Concepts & HW

Home mortgage interest on acquisition indebtedness of ____ if incurred after 12/15/2017

$750k

3 categories of deductions FOR AGI

Directly related to business activity Indirectly related to business activity Subsidizing specific activities

Alimony payments are deductible (for/from) AGI

For

Rental and royalty endeavors are considered to be __ activity, but like trade or business expenses, deductions are deductible for AGI

Investment

How does investment activities differ from business activities?

Investment activities are profit-motivated activities that do not require a high degree of involvement or effort

Charitable contributions are contributions of ____

Money or property that must be made to qualified charity

Section 162 trade or business expenses states that in general there should be allowed as a deduction all the ____ and ____ expenses ____ or ____ during the taxable year in ____ any ____

Ordinary Necessary Paid Incurred Carrying on Trade or business

What are the requirements for deduction per section 162 and 212 Related to carrying on trade or business or income producing activity (4).

Ordinary Necessary Paid/incurred during year Reasonable in amount

Congress limits business deductions to expenses directly related to the business activity and those that are ____ and ____ for the activity.

Ordinary and necessary

Distributions from traditional IRAs are taxed as ____ and early distributions (before 59.5 years) are subject to ___% penalty

Ordinary income 10%

Section 212 allows deductions for ordinary and necessary expenses paid or incurred for what 3 things?

Production or collection of income Mgmt, conservation, or maintenance of property held for production of income Expenses paid in connection with the determination, collection, or refund of any tax

Related to carrying on trade or business or income producing activity Must be ___ motive Deny ___ expenses Costs of earning a living v. costs of living

Profit Personal

Deductions for AGI for tax purposes directly related to business activities are activities that are either ___ or ____

Profit-motivated or motivated by personal objectives

Why is for AGI preferred over from AGI?

Reduce taxable income dollar for dollar while from AGI sometimes has no effect on TI

Explain why Congress allows self-employed taxpayers to deduct the employer portion of their self-employment tax.

To put self-employed individuals on somewhat equal footing with other employers that are allowed to deduct the employer's share of the social security tax. Hence, self-employed taxpayers are allowed to deduct the employer's share of the self-employment tax.

Activities that require a relatively high level of involvement or effort

Trade or business

Taxpayers are allowed to deduct FMV if charitable and are thus not required to include appreciation on asset in gross income or the difference in realized gain

True

What are3 expenses not deductible?

Unreimbursed employee business expenses Tax prep fees Investment expenses Hobby expenses

Qualifying medical expenses include what?

Unreimbursed payments for care Prevention Diagnosis Cure of injury, disease, or bodily function

Simon lost $5,000 gambling this year on a trip to Las Vegas. In addition, he paid $2,000 to his broker for managing his $200,000 portfolio and $1,500 to his accountant for preparing his tax return. In addition, Simon incurred $2,500 in transportation costs commuting back and forth from his home to his employer's office, which were not reimbursed. Calculate the amount of these expenses that Simon is able to deduct (assuming he itemizes his deductions).

$0. Gambling losses are only deductible to the extent of gambling winnings. Thus, Simon cannot deduct any of the $5,000 gambling losses. Unfortunately, the investment expenses, tax return fees, and commuting expenses are also nondeductible.

Home mortgage interest on acquisition indebtedness of ____ if incurred before 12/16/2017

$1 million

Total itemized deduction for state and local taxes is limited to ____; itemized deduction for foreign income taxes is not subject to this limitation.

$10,000 $5,000 MF separate

Total itemized deduction for state and local taxes is limited to ____. Deduction for ____ income taxes is not subject to this cap

$10k ($5k MFJ) Foreign

This year Diane intends to file a married-joint return. Diane received $177,500 of salary and paid $5,000 of interest on loans used to pay qualified tuition costs for her dependent daughter, Deb. This year Diane has also paid moving expenses of $4,300 and $28,300 of alimony to her ex-spouse, Jack, who she divorced in 2012. a. What is Diane's adjusted gross income? b. Suppose that Diane also reported income of $8,800 from a half share of profits from a partnership. Disregard any potential self-employment taxes on this income. What AGI would Diane report under these circumstances?

$147,050 $156,583

When taxpayers use personal vehicles for charitable transportation purposes, they may deduct, as cash contribution, standard mileage allowance for each mile driven of ___ cents

14 cents per mile

Medical expense deduction limitation is limited to the mount of unreimbursed qualified medical expense paid during year reduced by ___% of taxpayer's AGI. This is called a ____ because it eliminates any deduction for amounts below the floor.

7.5 Floor limitation

For purposes of the deduction for qualified business income, what is a specified service trade or business, and why is it important?

A specified service trade or business means any trade or business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. Architecture and engineering services are specifically excluded from the definition of specified service trade or business. It is important because specified service trade or businesses are generally not eligible for the deduction for qualified business income (i.e., they are not considered a qualified trade or business).

What are tax purposes in general?

Activities are either profit-motivated or motivated by personal objectives

Capital gain property is ____

Any appreciated asset that would have generated as long-term capital gain if taxpayer had sole property for its FMV instead of contributing to charity

Something must be ordinary and necessary to deduct. What does necessary mean?

Appropriate, helpful Capable of making contribution Court's reticence

Taxpayers disposing of business assets at a loss (are/are not) allowed to deduct losses for AGI

Are

Business expenses (are/are not) deducted for AGI. What is the exception?

Are Lone exception is unreimbursed employee business expenses, which are not deductible.

Moving expenses (are/are not) deductible.

Are not

How is a business activity distinguished from an investment activity? Why is this distinction important for the purpose of calculating federal income taxes?

Both business and investment activities are motivated primarily by profit intent, but they can be distinguished by the level of profit-seeking activity. A business activity is commonly described as a sustained, continuous, high level of profit-seeking activity, whereas investment activities don't require a high level of involvement. The distinction between business and investment activities is critical for determining whether a deduction associated with the activity is above or below the line, or even deductible. With one exception, business expenses are deducted for AGI. The lone exception is unreimbursed employee business expenses, which are not deductible. In contrast, investment expenses are deductible as itemized deductions, if deductible at all, with one exception. Expenses associated with rental and royalty activities are deductible for AGI regardless of whether the activity qualifies as an investment or a business.

Called "trade" or "business"

Business activities

Profit-motivated activities are classified as ___ and ___

Business activities Investment activities

Most common deductions for AGI

Business deductions

2 most important deductions for agi

Business expenses Rental/royalty expenses

Deductions for AGI expenses are claimed on ____ schedule. Revenues from the same activity are reported on ____ schedule. The net income or loss from schedule C is transferred to schedule ____, line ____, and then combined with other items and included on form ____ page 1, linen 8

C C 1 3 1040

Nondeductible contributions (can/cannot) be made

Can

Investment assets are also known as ____

Capital assets

____ are codification or extension of prior court decisions. After courts denied deductions for payments in violation of public policy, tax law was changed to provide specific authority for the disallowance.

Certain disallowance provisions

Identify which itemized deductions are subject to floor limitations, ceiling limitations, or some combination of these limits.

Charitable contributions, home mortgage interest, and taxes are subject to ceiling limits (based on a percentage of AGI, on the amount of debt, and a flat amount, respectively) whereas aggregate medical expenses and gambling expenses and losses are subject to separate floor limits (based upon percentages of AGI and amount of gambling income, respectively). All itemized deductions are subject to the standard deduction which is a flat floor limitation.

Profit-motivated activities are classified as either ____ or ____

Classified as either 1) business activities 2) Investment activities

Employers are allowed to deduct health insurance premiums as ___, while employees are allowed to exclude these premiums from ___

Compensation GI

What is the general rule for deductions for losses?

Deduct any loss sustained not compensated for by insurance or otherwise (section 165)

What does ordinary and necessary for activity mean?

Deductible expenses must be appropriate and helpful for generating a profit

Activity Type: Investment activities What is considered: Deduction for AGI? Deduction from AGI (itemized)? Not deductible?

Deduction for AGI = Rental and royalty expenses Deduction from AGI = Investment interest expense Not deductible = Other investment expenses

Activity Type: Business activities What is considered: Deduction for AGI? Deduction from AGI (itemized)? Not deductible?

Deduction for AGI = self-employed business expenses Deduction from AGI = N/A Not deductible = unreimbursed employee business expenses

Two itemized deductions for interest expense

Deduction of investment interest is limited to taxpayer's net investment income Any investment interest in excess of net investment income limitation carries forward to subsequent year Home mortgage interest

3 categories of deductions for AGI

Deductions directly related to business activities Deductions indirectly related to business activities Deductions subsidizing specific activities

List all deductions for AGI

Deductions related directly to business activities - trade or business expenses - Rental and royalty expenses - Losses on Dispositions - Flow-through entities - Excess business loss limitation Deductions indirectly related to business activities - moving expenses - health insurance deduction by self-employed taxpayers - Deductions for IRA - Deductions for health savings accounts - Penalty for early withdrawal savings - Self-employment deduction Deductions subsidizing specific acitivities Deduction for interest on qualified education loans

What are the special rules that apply to charitable contributions of property?

Depends on type of property - capital gain - ordinary income

Deductions for AGI, trade or business expenses must be ____, ____ and ____

Directly connected to business activity Ordinary and necessary for activity (appropriate for generating profit) Reasonable in amount (not extravagant)

On distribution, for nondeductible contributions, taxpayer is taxed on ____, but not on ____

Earnings generated by nondeductible contributions Not on actual nondeductible contributions

Self-employed taxpayers are allowed to deduct the ____ portion of the self-employment tax they pay to compensate for employers deducting their portion of SS

Employer

Alimony payments are deductible for AGI to maintain ____ if____ executed before 2019

Equity Pursuant to a divorce or separation agreement

Health insurance deduction by self-employed taxpayers provides ____

Equity with employees who receive health insurance as a qualified fringe benefit

What is the excess business loss limitation? Is this deductible?

Excess of aggregate business deductions over the sum of aggregate business gross income or gain plus $270k ($540k married filing jointly) Not deductible, but carried forward

Exhibit 6-9 page 22

Exhibit 6-9 page 22

Two types of deductible investment expenses. All other investment expenses are nondeductible

Expenses associated with rental and royalty activities Investment interest expense as itemized deduction

Stock is intangible property, thus deduct ___ value of the stock would be mount of charitable contribution deduction

FMV

Taxpayers are allowed to deduct ___ value of capital gain property on date of donation

FMV

Deductions (for/from) AGI are deductible even if taxpayer doesn't itemize.

For

Flow through (for/from) AGI deduction entities?

For

Taxpayers disposing of trade or business assets at a loss are allowed to deduct loss (for/from) AGI

For

Deductible contributions to traditional IRAs are (for/from) AGI deductions. What is the amount?

For Depends on number of factors

Expenses associated with rental and royalty activities is deductible (for/from) AGI regardless of whether activity qualifies as investment or business. Investment interest expense is deductible (for/from) AGI as itemized deduction.

For From

Rental and royalty expenses are claimed (for/from) AGI.

For AGI Deduction Above the line

As part of the health insurance deduction by self-employed taxpayers, they can claim personal health insurance premiums for who? What type of deduction is this? What does the income have to be from?

For AGI, but only to extent of self-employment income derived from specific trade or business Taxpayer Taxpayer's spouse Taxpayer's dependents Taxpayer's children under 27

Charitable contributions are ___ deductions

From AGI Itemized

What are the 3 miscellaneous itemized deductions?

Gambling losses and expenses to the extent of gambling income Casualty and theft losses on investment property Unrecovered cost of life annuity at death

Deductions for AGI directly related to business activities taxpayers are allowed to deduct expenses incurred to ____

Generate business income

Allowed to deduct interest expense on home as itemized deduction if ___ and ___

Home mortgage is secured by home Considered acquisition indebtedness

How are expenses and losses for flow-through entities for AGI deductions accounted for?

Incurred by a flow-through entity pass through to entity owners, who report these amounts on Schedule E, then Schedule 1, line 5, and then combine with other items and include on Form 1040 (page 1), line 8

Why are donations to homeless NOT deductible as charitable contributions?

Individuals do not qualify as charitable organizations

Related to carrying on trade or business or income producing activity: Section 162 trade or business related must have what two requirements?

Intention to make profit Entrepreneurial/personal effort

Taxpayers are allowed to deduct FOR AGI, subject to what limitations?

Interest expense on qualified educational loans - up to $2500 of interest on education loans id deductible for AGI - interest deduction is phased out for taxpayers with AGI exceeding $70k ($145k MFJ) - deduction is eliminated for taxpayers with AGI exceeding $85k ($175k MFJ) Qualified education expenses

Investment activities involve ____

Investing in property for appreciation or for income payments

Suppose that Courtney purchased a parcel of land for its appreciation potential. Would her ownership in the land be considered a business or investment activity?

Investment activity b/c she acquired land for its appreciation potential, and she does not plan to exercise any special effort to develop the property or to become actively involved in other real estate speculation.

Capital assets include __, __, __

Investment assets Business assets Personal use

Medical expenses are what type of deductions?

Itemized (from AGI)

It has been suggested that tax policy favors deductions for AGI compared to itemized deductions. Describe two ways in which deductions for AGI are treated more favorably than itemized deductions.

Itemized deductions must exceed the standard deduction before taxpayers receive any tax benefit from the deductions (this is equivalent to an overall floor limit). In contrast, business deductions that are deductible for AGI (above the line) reduce taxable income without being subject to an overall floor limit. Also, itemized deductions are subject to many mechanical limitations including ceilings and floors, whereas business deductions are generally not subject to these limits.

Jake is a retired jockey who takes monthly trips to Las Vegas to gamble on horse races. Jake also trains racehorses part time at his Louisville ranch. So far this year, Jake has won almost $47,500 during his trips to Las Vegas while spending $27,250 on travel expenses and incurring $62,400 of gambling losses. Explain how Jake's gambling winnings and related costs will be treated for tax purposes.

Jake's $47,500 of gambling winnings is included in his gross income. The gambling losses and expenses (total of $89,650) are only deductible as an itemized deduction, limited to the amount of gambling winnings. Thus, only $47,500 will be deductible.

Medical expense deduction limitation

Limited to the amount of unreimbursed qualified medical expenses paid during the year no matter when the services were provided reduced by 7.5% of taxpayer's AGI.

Limitations on individuals: deduct only what three things?

Losses in trade or business Losses in transaction entered into for profit Casualty and theft losses

Tax law disallows deduction of certain types of expenses for variety of reasons included what?

May restrict taxpayer attempts to deduct certain items that in reality are personal expenditures

Deductions from AGI: Itemized Deductions (list)

Medical expenses Transportation and travel for medical purposes Hospitals and long-term care facilities Taxes (certain) Interest Charitable contributions Contributions of money Capital gain property Ordinary income property Casualty and theft losses on personal use assets

What happens when capital losses > capital gains?

Net capital loss Net capital loss is deducted for AGI but limited to $3k; losses in excess of $3k limit are carried forward indefinitely to subsequent years

If itemized deductions <, does taxpayer lose deduction?

No

Related to carrying on trade or business or income producing activity Section 212 income producing requires what 2 things?

Nonbusiness Investment

In each of the following independent cases, indicate the amount (1) deductible for AGI, (2) deductible from AGI, and (3) deductible neither for nor from AGI before considering income limitations or the standard deduction. a. Fran spent $90 for uniforms for use on her job. Her employer reimbursed her for $75 of this amount under an accountable plan (and did not report the reimbursement as wages). b. Timothy, a plumber employed by ACE Plumbing, spent $65 for small tools to be used on his job, but he was not reimbursed by ACE. c. Jake is a perfume salesperson. Because of his high pay, he receives no allowance or reimbursement from his employer for advertising expenses even though his position requires him to advertise frequently. During the year, he spent $2,200 on legitimate business advertisements. d. Trey is a self-employed, special-duty nurse. He spent $120 for uniforms. e. Mary, a professor at a community college, spent $340 for magazine subscriptions. The magazines were helpful for her research activities, but she was not reimbursed for the expenditures. f. Wayne lost $325 on the bets he made at the race track, but he won $57 playing slot machines.

Not deductible. The unreimbursed employee business expenses of $15 are not deductible. Income and expenses associated with the $75 reimbursement from an accountable plan completely offset each other and are ignored. Note that the accountable plan only reimburses deductible expenses. b. Not deductible. The unreimbursed employee business expenses of $65 are not deductible. c. Not deductible. The unreimbursed employee business expenses of $2,200 are not deductible. d. $120 for AGI deduction- trade expense assuming that the special duty uniforms cannot be adapted to normal use. e. Not deductible. The unreimbursed employee business expenses of $340 are not deductible. f. $57 from AGI as an other itemized deduction. Wayne's gambling loss deduction is limited to his winnings. The remaining $268 is not deductible.

Something must be ordinary and necessary to deduct. What does ordinary mean?

Not necessarily recurring or habitual Customarily included in given circumstances Not extraordinary

Moving costs are nontaxable if ____ and deductible if ___

Paid by employer Not paid by employer

Not allowed or limited deductions (7)

Personal living expenditures Capital expenditures Expenses related to tax exempt income Related party transactions Home office expenses Expenses contrary to public policy Hobby expenses

Statutory specifically allowed deductions

Personal: - medical - taxes - charity - residence interest - casualty and theft losses

How are deductions defined?

Reduction in taxable income Subtraction from income ultimately to arrive at taxable income Not always an expense as some deductions allowed without outlay of cash (ex: DRD for corp)

What could be either investment activity or trade activity depending on facts?

Rental and royalty expenses

Business deductions are reported where and how?

Reported with business revenues on Schedule C of Form 1040 Taxpayers transfer net income or loss from Schedule C to Schedule 1, line 3, which is then combined with other items and included on form 1040, line 8 as part of total income

What do employers deduct on what they pay on employee salaries?

SS and Medicare

How do taxpayers report expenses and revenues for rental and royalty expenses?

Schedule E and transfer the net income or loss from Schedule E to Schedule 1, line 5, and then combine with other items and include on Form 1040 (page 1) line 8

Trade or business deductions

Section 162a permits deduction for all ordinary and necessary expenses paid or incurred in carrying on trade or business including - reasonable salaries paid for services - expenses for use of business property - 1/2 of self-employment taxes paid These expenses are deducted FOR AGI

Self employed individuals are required to pay ____ tax in lieu of SS tax.

Self-employment tax

This tax represents both employee's and employer's share of SS and Medicare taxes

Self-employment tax

Basic strategy of bunching itemized deductions consists of shifting ____

Shifting itemized deductions into 1 year such that the amount of itemized deductions exceeds standard deduction for the year and then deducting the standard deduction in the next year or vice versa

Deduction for QBI excludes ____ and is subject to ___ limitation and ____ limitation

Specified service trade or business except for taxpayers with TI below $170,050; $340,100 joint; $170,050 MFJ separately Subject to wage and TI limitations

Sales tax deduction

State and local sales taxes can be deducted in lieu of state and local income taxes

Individuals may deduct itemized deductions payments for what 3 taxes?

State, local, foreign State and local real estate taxes on property held for personal or investment purposes State and local personal property taxes that are assessed on value of specific property

Bunching itemized deductions

Tax benefit can be gained by implementing simple timing tax-planning strategy Taxpayers with itemized deductions that fall just short of the standard deduction amount These itemized deductions do not produce any tax benefit Rather than deduct the standard deduction every year time deductions (when possible) to bunch together in one year

Substantiation requirements for deduction

Taxpayer has burden of proof for substantiating all expenses deducted on return Adequate records of expenses must be maintained

Describe the tax benefits from "bunching" itemized deductions in one year. Describe the characteristics of the taxpayers who are most likely to benefit from using bunching and explain why this is so.

The strategy of bunching itemized deductions (a cash-basis taxpayer paying two years' worth of deductible expenses in one year to the extent possible) makes it more likely that deductions will exceed a floor limit. This strategy can be effective for generating some incremental tax benefits from total itemized deductions. Taxpayers are likely to benefit from bunching if (1) they are unlikely to have sufficient itemized deductions in any one year to easily exceed the standard deduction, but can easily exceed the standard deduction by summing itemized deductions for two consecutive years, (2) report on the cash-basis and (3) are able to time payments around year-end (to minimize the loss of present value). Charitable deductions and real estate taxes (due at year-end) can often be easily bunched into one year or another.

Taxpayers may deduct medical expenses incurred to treat who?

Themselves Spouse Dependents

Itemized deductions are deducted FROM AGI only if ____

They exceed standard deduction

Although business activities and investment activities are both motivated primarily by profit, business activities are distinguished from investment activities how?

Trade or business activities require relatively high involvement or effort from taxpayer whereas investment activities do not. Investment activities involve investing in property for appreciation or for income payments

Statutory general provisions requirements for deduction

Trade or business expenses Income producing expenses Certain losses

Deduction for QBI is limited to qualified ___ or ____

Trade/business

Determine whether a taxpayer who is claimed as a dependent on another return is entitled to an addition to the standard deduction for age or blindness. (Hint: Read the calculation of the standard deduction under §63.)

Under §63(c), standard deduction is defined as the "basic" standard deduction plus an "additional" standard deduction for age and sight. However, §63(c)(2) only limits the "basic" standard deduction for a taxpayer claimed as a dependent on another's return to $1,150 or $400 plus the individual's earned income, whichever is greater. Hence, it would appear that a taxpayer claimed as a dependent on another's return could claim an addition to the standard deduction for age and sight.

Under what circumstances would business income from an accounting practice qualify for the deduction for qualified business income?

Unfortunately, accounting services is specifically defined as specified service trade or business that is not considered a qualified trade or business for the deduction. Thus, generally business income from an accounting practice is not eligible for the deduction for qualified business income. However, for any year in which the taxpayer's taxable income (before the deduction for qualified business income) is less than $170,050 ($340,100, in the case of a joint return; $170,050 for married filing separate), the exclusion for specified service trades or business will not apply (an accounting practice will be deemed a qualified trade or business). For taxpayers with taxable income above $170,050 ($340,100, in the case of a joint return; $170,050 for married filing separate), the exclusion from the definition of a qualified business for specified service trades or businesses phases in over a $50,000 range ($100,000, in the case of a joint return). The exclusion from the definition of a qualified business for specified service trades or businesses is fully phased in for taxpayers with taxable income in excess of $220,050 ($440,100 in the case of a joint return; $220,050 for married filing separate). Thus, business income from an accounting practice would at least partially qualify for the deduction for qualified business income if the taxpayer had taxable income (before the deduction for qualified business income) less than $220,050 ($440,100, in the case of a joint return; $220,050 for married filing separate).

Don Juan, a single taxpayer, is the sole owner, of DJ's Inc., an S corporation. In 2022, DJ's Inc. incurred a massive $600,000 business loss, all of which is allocable to Don Juan as the sole shareholder. Assume that the $600,000 loss is not limited by the basis, at-risk, or passive loss rules and that Don Juan has no other business income or business losses. How much of the $600,000 loss will Don Juan be able to deduct this year? What happens to any loss not deducted this year?

Unfortunately, the $600,000 business loss is subject to the excess business loss limitation. An excess business loss is the excess of aggregate business deductions for the year over the sum of aggregate business gross income or gain of the taxpayer plus a threshold amount. The threshold amount for the current tax year is $540,000 for married taxpayers filing jointly and $270,000 for other taxpayers. Since Don Juan is single, his excess business loss is $330,000 (the excess of his $600,000 business loss over the sum of his other business income ($0) and the $270,000 threshold amount). Don Juan may deduct $270,000 of the loss this year. The $330,000 excess business loss will be carried forward next year to Don Juan's tax return.

Not allowed to deduct fee for automobile if fee is not based on________________

Value of automobile

Requirements for deduction Contrast with income: everything is taxable except ___ nothing is deductible except ____

What's not What is

Requirement of deduction: paid/incurred during the year

Year of deduction No matching principle Depends on method of accounting

Is statutory authority required for deduction? If so what?

Yes Authorization - general - specific

Clem is married and is a skilled carpenter. Clem's wife, Wanda, works part time as a substitute grade school teacher. Determine the amount of Clem's expenses that are deductible for AGI this year (if any) under the following independent circumstances: a. Clem is self-employed, and this year he incurred $525 in expenses for tools and supplies related to his job. Because neither was covered by a qualified health plan, Clem paid health insurance premiums of $3,600 to provide coverage for himself and Wanda (not through an exchange). b. Clem and Wanda own a garage downtown that they rent to a local business for storage. This year they incurred expenses of $1,250 in utilities and $780 in depreciation. c. Clem paid self-employment tax of $15,300 (the employer portion is $7,650) and Wanda had $3,000 of Social Security taxes withheld from her pay. d. Clem paid $45 to rent a safety deposit box to store his coin collection. Clem has collected coins intermittently since he was a child, and he expects to sell his collection when he retires.

a. $4,125 - The tools and supplies and the health insurance are deductible for AGI. b. $2,030 - The utilities and depreciation are deductible for AGI (rental activity). c. $7,650 -The employer portion of the self-employment tax is deductible for AGI but the Social Security tax is not deductible. d. $0 - The safety deposit box fee is a nondeductible investment expense as it appears that Clem is investing in rare coins rather than a dealer in coins - a business.

Amelie, a retired physician, is 66 years old. Determine her standard deduction in 2022 under the following scenarios.a. Amelie is married to Roget, age 52, and they file married joint. b. Amelie is single. c. Amelie is single and her 10-year-old granddaughter, Emma, lives with her. Amelie supports Emma and claims her as a dependent. Amelie files as head of household.

a. Amelie and Roget's standard deduction would be $27,300 ($25,900 based standard deduction for married filing joint plus $1,400 since Amelie is 65 or older). b. Amelie's standard deduction would be $14,700 ($12,950 based standard deduction for single taxpayer plus $1,750 since Amelie is 65 or older). c. Amelie's standard deduction would be $21,150 ($19,400 based standard deduction for head of household plus $1,750 since Amelie is 65 or older).

Jackson is 18 years old and has a dog-sitting business. Calculate the 2022 standard deduction Jackson will claim under the following independent circumstances. a. Jackson reported $2,000 of earnings from his dog sitting and $300 in interest income from his savings account. Jackson's parents claim him as a dependent. b. Jackson reported $500 of earnings from his dog sitting and $2,000 in interest income from his savings account. Jackson's parents claim him as a dependent. c. Jackson reported $8,000 of earnings from his dog sitting and $3,000 in interest income. Jackson's parents do not claim him as a dependent.

a. Jackson can claim a standard deduction of $2,400, the greater of the minimum standard deduction ($1,150) or $400 plus his earned income ($2,000). The interest income does not impact his standard deduction. b. Jackson can claim a standard deduction of $1,150, the greater of the minimum standard deduction ($1,150) or $400 plus his earned income ($500). The interest income does not impact his standard deduction. c. Jackson may claim a standard deduction of $12,950, the standard deduction for a single taxpayer in 2022.

In each of the following independent cases, indicate the amount (1) deductible for AGI, (2) deductible from AGI, and (3) deductible neither for nor from AGI before considering income limitations or the standard deduction. a. Ted paid $50 rent on a safety deposit box at the bank. In this box he kept the few shares of stock that he owned. b. Tyler paid $85 for minor repairs to the fence at a rental house he owned. c. Timmy paid $545 for health insurance premiums this year (not through an exchange and not with pre-tax dollars). Timmy is employed full time and his employer paid the remaining premiums as a qualified fringe benefit. d. Tess paid $1,150 of state income taxes on her consulting income.

a. Not deductible - investment expense (other than investment interest expenses or rental or royalty expenses associated with an investment activity) is generally not deductible b. Deduction for AGI - rental/royalty expense c. The health insurance is from AGI - medical itemized deduction but subject to an AGI floor limitation. d. The state income taxes are deductible from AGI (an itemized deduction).

Smithers is a self-employed individual who earns $30,000 per year in self-employment income. Smithers pays $2,200 in annual health insurance premiums (not through an exchange) for his own medical care. In each of the following situations, determine the amount of the deductible health insurance premium for Smithers before any AGI limitation. a. Smithers is single, and the self-employment income is his only source of income. b. Smithers is single, but besides being self-employed, Smithers is also employed part time by SF Power Corporation. This year Smithers elected not to participate in SF's health plan. c. Smithers is self-employed and is also married. Smithers's spouse, Samantha, is employed full-time by SF Power Corporation and is covered by SF's health plan. Smithers is not eligible to participate in SF's health plan. d. Smithers is self-employed and is also married. Smithers's spouse, Samantha, is employed full time by SF Power Corporation and is covered by SF's health plan. Smithers elected not to participate in SF's health plan.

a. Smithers can deduct $2,200 either as a deduction for AGI or claim $2,200 as an itemized medical expense. b. Smithers can claim only $2,200 as an itemized medical expense. Even though he is self-employed, he is not eligible to deduct the health insurance premiums as a for AGI deduction because he is eligible to participate in his employer's plan (even though he did not actually participate). c. Smithers can deduct $2,200 either as a deduction for AGI or claim $2,200 as an itemized medical expense. d. Smithers can claim only $2,200 as an itemized medical expense. Even though he is self-employed, he is not eligible to deduct the health insurance premiums as a for AGI deduction because he is eligible to participate in his spouse's employer's plan (even though he did not actually participate in her plan).

Taxpayers (are/are not) allowed to deduct excess business loss for year

are not Carred forward to subsequent years

Losses from investment assets that are offset against ____

capital gains