Deductions Flashcards
Expenses related to investment activities or other activities that produce income are deductible if
Ordinary, necessary and reasonable.
Expenses related to one’s personal activities cannot be deducted unless
Specifically provided for in the IRC (e.g., charitable contributions, mortgage interest).
Expenses related to trade or business activities are deductible if
If they are related to the business operations and are ordinary, necessary, and reasonable.
Define ordinary & necessary
The nature of the expenditure is customary and appropriate under the circumstances.
Define reasonable
Expenditure cannot be extravagant in amount.
Deductions for AGI primarily consist of
Business related expenses
To be deductible, moving expenses must be
Related to a job change or first job
Two components to determine if moving expenses are deductible
1) The new job location must add 50 miles to the old commute to justify deduction 2) The taxpayer must be active in a new job for a substantial period after the move (39 weeks)
What moving expenses qualify
1) reasonable amounts paid to move possessions and transportation costs (not meals) for taxpayer and others residing with the taxpayer 2) The cost of storing and insuring possessions while being moved is deductible
Alimony payments you make under a divorce or separation instrument, such as a divorce decree or a written agreement incident thereto, are deductible if all of the following requirements are met
1) You and your spouse or former spouse do not file a joint return with each other 2) You pay in cash (including checks or money orders 3) The divorce or separation instrument does not say that the payment is not alimony 4) If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment 5) You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse 6) Your payment is not treated as child support.
