Chapter 6: Deductions and Losses: In General

most common deductions for AGI

• expenses for production of rent and royalties

• expenses for a trade or business

what does code 162 allow 

deduction for all ordinary and necessary expeneses for trade/business

code 162 excludes what from trade/business expense 

• charitable contributions 

• illegal bribes 

• fines 

for code 162 and 212 deductions need to be what (3)

• ordinary

• necessary

• reasonable

Angel is single, had gross income of $38,000, and incurred the following expenses:

Charitable contribution $2,500

Taxes and interest on home 9,000

Legal fees incurred in a tax dispute 1,000

Medical expenses 4,000

Penalty on early withdrawal of savings 200

Angel’s A G I is:

a. $21,300.

b. $28,800.

c. $32,800.

d. $35,500.

e. $37,800.

does inventory use accural or cash method

alwasy accural

in what situation can corporation use cash method

if average gross recepits over the last 3 yeras are 30 million or under

what is the all events test

deductions to be claimed only when all of the events have occurred and the amount of liability is determined with reasonable accuracy

to deduct legal expenses ,it must be related to what (2)

1. a trade or business

2. income producing activity

are personal legal expenses deductible

no

are illegal business expenses deductible

yes 

according to section 162 what illegal activies can’t be deducted 

• fines 

• bribes

• illegal kickback

what is the only thing drug dealers allowed to deduct

cost of goods sold

can businesses deduct for political donations

NO

are lobbying cost deductible

No

how much of hobby expense can be deducted

extend of hobby income

if a activity made a profit in ______ it’s a trade or business

what makes a property a 2nd personal residence

rented for less than 15 days