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CCH Essentials of Federal Income Taxation Chapter 6 Other Itemized Deductions ©2003, CCH INCORPORATED 4025 West Peterson Ave. Chicago, IL 60646-6085 http://tax.cchgroup.com Job Expenses and Most Other Miscellaneous Deductions

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chapter 6

CCH Essentials of Federal Income Taxation

Chapter 6

Other Itemized Deductions

©2003, CCH INCORPORATED

4025 West Peterson Ave.

Chicago, IL 60646-6085

http://tax.cchgroup.com

job expenses and most other miscellaneous deductions
Job Expenses and Most Other Miscellaneous Deductions

Schedule A allows for two types of miscellaneous deductions. One type is subject to a 2% floor; the other is not.

Chapter 6

CCH Essentials of Federal Income Taxation

accountable reimbursement plans
Accountable Reimbursement Plans

Accountable reimbursement plans must provide for each of the following requirements:

  • Employees must account for (substantiate) their expenses to the employer
  • Employees must return any reimbursement in excess of the substantiated expenses covered under the arrangement

Chapter 6

CCH Essentials of Federal Income Taxation

business expense records
Business Expense Records

Employee business expense records must include six elements:

  • Amount
  • Date
  • Place
  • Business purpose
  • Business relationship
  • Identity of individuals

Chapter 6

CCH Essentials of Federal Income Taxation

unreimbursed expenses
Unreimbursed Expenses

Unreimbursed employee business expenses reported on Form 2106:

  • Vehicle(s) used for business
  • Parking fees, tolls, and local transportation
  • Travel while away from home, including lodging, airfare, car rental, etc.
  • Other business expenses not included elsewhere on Form 2106
  • Meals and entertainment

Chapter 6

CCH Essentials of Federal Income Taxation

other business expenses reported on form 2106
Other Business Expenses Reported on Form 2106
  • Vehicle expenses
  • Parking fees, tolls, and transportation that do not involve overnight travel
  • Travel expenses
  • Meals and entertainment expenses

Chapter 6

CCH Essentials of Federal Income Taxation

deductible vehicle expenses
Deductible Vehicle Expenses
  • Depreciation
  • Lease and rental payments
  • Gasoline, oil, and lubrications
  • Insurance, license, and auto club fees
  • Maintenance, repairs, and parts
  • Personal property taxes
  • Garage rent

Chapter 6

CCH Essentials of Federal Income Taxation

parking fees tolls and transportation that do not involve overnight travel
Parking Fees, Tolls, and Transportation That Do Not Involve Overnight Travel

Employees can claim deductible parking and other transportation expenses regardless of whether the standard rate or the actual expense method of reporting is used. Employees using transportation in the course of business or work can deduct the costs of local transportation expenses. Deductible expenses include the costs of parking (away from work), tolls, cab fares, buses, trains, airfares, and shuttles.

Chapter 6

CCH Essentials of Federal Income Taxation

travel expenses
Travel Expenses

Employee travel expenses include amounts paid or charged when an employee is temporarily away from home overnight for work-related reasons.

Instead of keeping receipts for all travel expenses, the employee can use the IRS’s per diem rates for travel.

Employees who combine business and pleasure on the same trip face limits on the deduction.

Chapter 6

CCH Essentials of Federal Income Taxation

meals and entertainment expenses
Meals and Entertainment Expenses

Two categories of meals and entertainment exist:

  • While doing business with clients and associates
  • While traveling

Chapter 6

CCH Essentials of Federal Income Taxation

other business expenses reported
Other Business Expenses Reported
  • Union dues
  • Licenses and insurance
  • Uniforms and safety equipment
  • Employee physical
  • Equipment, telephones, and computers
  • Supplies
  • Education
  • Job or employment search
  • Office in home

Chapter 6

CCH Essentials of Federal Income Taxation

miscellaneous deductions reported on schedule a
Miscellaneous Deductions Reported on Schedule A

The three primary categories of other nonbusiness expense include the following:

  • Expenses paid to generate or collect income
  • Costs to manage, conserve, or operate income-producing property
  • Funds spent to determine, contest, pay, or claim a refund of any tax

Chapter 6

CCH Essentials of Federal Income Taxation

hobby loss
Hobby Loss

Factors used in deciding whether an activity is a business or a hobby:

  • The taxpayer’s expertise in the area
  • Whether the taxpayer keeps separate books and records for the activity
  • Whether the activity showed profits in some years and losses in others
  • The amount of occasional profits the taxpayer earned from the activity
  • The relative amount of pleasure the taxpayer derives from the activity
  • The extent to which the taxpayer depends on the activity for financial support
  • The time and effort the taxpayer devotes to the activity
  • The taxpayer’s past success with other activities
  • The taxpayer’s expectation that the property used in the activity will rise in value

Chapter 6

CCH Essentials of Federal Income Taxation

illustrations of other expenses
Illustrations of Other Expenses
  • Safe deposit box
  • Investment advice
  • Subscriptions to financial newspapers, financial newsletters, mutual fund reports, financial magazines, etc.
  • Investment fees
  • Investment seminars and conventions
  • Financial planners
  • Clerical help, office expenses, and postage
  • Collection fees
  • Legal, accounting, and related software
  • Bank/trustee costs for investment or retirement plans
  • Limited depreciation on computer used for investment
  • Appraisal fees for casualty loss or charitable contributions
  • Repayment of excess social security received
  • Trustee’s commission to administer a revocable trust

Chapter 6

CCH Essentials of Federal Income Taxation

other miscellaneous deductions
Other Miscellaneous Deductions
  • Gambling losses
  • Impairment-related work expenses
  • Nondeductible expenses

Chapter 6

CCH Essentials of Federal Income Taxation

nondeductible expenses
Nondeductible Expenses
  • Personal rent, insurance, repairs, and telephone
  • Illegal bribes and kickbacks
  • Life insurance premiums
  • Personal disability insurance
  • Losses from sale of the taxpayer’s home, car, or furniture
  • Costs of meals while working late
  • Adoption costs (may qualify for a tax credit)
  • Funeral costs, including the lot
  • Election campaigning
  • Political contributions
  • Personal bank fees
  • Parking tickets and fines
  • Hobby losses in excess of income

Chapter 6

CCH Essentials of Federal Income Taxation