Adjusted Gross Income

Question 1

§62 defines Adjusted Gross Income as

Answer 1

§62 defines AGI as (gross income – Above The Line deductions)

NOTE: §62 is not a deduction granting provision, and in general, only those deductions listed in §62 are taken into account in computing AGI

Question 2

2 categories of deductions

Answer 2

Above the Line (ATL): Comprised of deductions enumerated in §62.

**Can be taken regardless if you itemize or not

Below the Line (BTL): Deductions a TP considers only after the AGI has been determined

**** Only allowed if you itemize deductions, foregoing standard deduction **

NOTE: whether or not the standard deduction is used, TP can

still deduct trade/business expenses. So itemize trade/business

expenses – this is AGI. Then itemize the other expenses or take

the standard deduction. The end result is taxable income.

Question 3

BTL deduction vs the standard deduction

Answer 3

Taxpayer may deduct either the BTL deduction or the standard deduction, but not both

• If the standard deduction exceeds the BTL deduction, there is no tax benefit and is in effect wasted
• BTL deduction is effectively deductible only if in the aggregate, they exceed the standard deduction

Question 4

Typical Deduction Catergories

Answer 4

• Business Expenses (162)
• Expenses for the production of income (212).
• Personal expenses typically don’t count (262). Commuting, clothing for work,
• Some personal expenses are deductible (164) – real property taxes, state taxes paid. Also student loans.
• Capital Expenditures (263)
• Depreciation (167/168)
• Interest (163)
• Charitable Contributions (170) (Note that AGI must be computed to take this deduction.)

Question 6

Credit v Deduction