REG 2 - Itemized Deductions

Question 1

What charitable contributions are deductible? What charitable contributions are nondeductible?

Answer 1

Deductible charitable contributions are:

• Items given to charity (organization) in cash, basis of property.

Nondeductible charitable contributions are:

• Gifts: items given to individuals (needy family)
• Political contributions

Question 2

What is the maximum allowable itemized deduction for cash and property charitable contributions?

Answer 2

Cash - 50% of AGI

FMV property - 30% of AGI for gifts of long-term capital gain property

Question 3

Explain the consideration for charitable contributions if the taxpayer receives consideration? E.g. ticket bought for charity ball for $200.

Answer 3

Taxpayers can only deduct the excess contribution over the consideration received.

E.g. JoAnn buys a ticket to a charity ball for $200. The actual value of attending the ball is $50. JoAnn may only take $150 charitable deduction.

Question 4

Define the timing of charitable contributions for itemized deductions?

Answer 4

Charitable contributions are deductible when:

• Paid
• Charged

Question 5

Explain the charitable contribution a taxpayer may deduct for contribution of services?

Answer 5

• Taxpayer can NOT deduct contributions for free services
• Taxpayers CAN deduct out-of-expenses incurred as a result of giving services to a charity (driving to and from volunteer work)

Question 6

Define the additional requirement for large non-cash charitable contributions?

Answer 6

Taxpayers claiming more than $5,000 as a charitable deduction are required to have a written appraisal

Question 7

Explain the numbers of years a taxpayer can carryover excess charitable contributions?

Answer 7

Taxpayers can carryover excess charitable contributions up to FIVE YEARS (if the charitable contributions are subject to the 50% of AGI limit)

Question 8

What is the formula for casualty losses as itemized deductions?

Answer 8

Smaller loss (lost cost/ adjusted basis / decreased FMV)
Less: Insurance recovery
= Taxpayer's loss
Less: $100
= Eligible loss
Less: 10% of AGI
= Deductible loss

Question 9

What are the qualifications needed to deduct casualty losses?

Answer 9

Losses can be deducted if:

1) Loss was sudden and unexpected

2) An insurance claim was filed
OR
The losses are not covered by insurance

Question 10

What casualty losses cannot be deducted as itemized deductions?

Answer 10

Losses cannot be deducted for:

Lost, misplaced, or broken property

Question 11

Explain unreimbursed business expenses as they relate to transportation, lodging, and meals/entertainment itemized deductions?

Answer 11

• Travel (100% deductible)
• Lodging (100% deductible)
• Meals (50% deductible)

Question 12

What are the qualifications needed to be able to deduct education expenses as education expenses? (Don’t get confused with education interest adjustment, and tuition and fees deduction)

Answer 12

An individual may deduct education expenses if they either:

• Maintain or improve skills needed by taxpayer in trade or business
• Meet the express requirements of the individual’s employer to retain job

Question 13

What cannot be deducted as education expenses as itemized deductions?

Answer 13

An individual can not deduct education expense if they were to meet minimum job requirement (e.g. CPA exam is a minimum requirement and cannot be deducted)

Question 14

What is the maximum amount business gifts can be deducted?

Answer 14

$25 per recipient per year

Question 15

Are hobby losses deductible? How do you determine if it is “engaged in for profit?”

Answer 15

“Activities NOT engaged in for profit” are not deductible. But “engaged in profit” is deductible.

To determine if hobbies are deductible they must have had profit 3 out of 5 years.

Question 16

What amount can gambling losses be deducted as itemized deductions?

Answer 16

Gambling losses are fully deductible, but only to the extent of gambling winnings.