13.

Nov 21

1
• Homework and in-class review
• Ch. 6 homework questions 3a through f; 6; 12; 14; 15; 27 (a and b); 29; 33 (a,b); 38(a).
• Review Edward Collins case

• Materials
• Chapter 6: Deductions and Losses – in General
• Consider learning objectives of this chapter (intro page to chapter 6)
• A deduction is allowed only if there is a specific provision in the tax law that permits it: “deductions are a matter of legislative grace”
• Classification of deductible expenses (pg. 6-2): deductions for AGI vs. deductions from AGI
• Work through rules and examples (pg. 6-3, etc.). Example 2 is important.
• Classifying deductions (pg. 6-3)
• Authority for deductions (pg. 6-3) and deduction criteria (pg. 6-5)
• Section 212 expenses vs. section 162 trade or business expenses (pg. 6-4, etc.)
• Personal expenses (pg. 6-6) and business/non-business losses (pg. 6-6)
• Deductions and losses – timing of expense recognition (pg. 6-9)
• Importance of method of accounting (pg. 6-9); paid or incurred language (pg. 6-10)
• Cash method requirements (pg. 6-10); accrual method requirements (pg. 6-10)
• Pre-paid expenses – the 12 month rule (pg. 6-12)
• Disallowance possibilities (pg. 6-13, etc.)
• See concept summary (pg. 6-31)

• In-class assignment:
• Ralph Louis Vitale, Jr. v. Comm'r
2
 ent
ts
TAX FORMULA FOR INDIVIDUALS

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[Pg. 3-4]

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Above the “LINE” deductions [Pg. 3-5]

Par
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The “LINE”

Con
[Pg. 3-6] ATL deductions generally represent costs incurred to
Below the “LINE”, deductions from AGI earn income, and may directly affect the amount of
[Pg. 3-7]
itemized deductions)

AGI is an important subtotal that is the basis for

computing percentage limitation on certain itemized
deductions
• E.g., medical expenses are deductible only to the
extent they exceed 7.5% of AGI (“7.5% floor”)
• E.g., deductions for gifts to public charities may
not exceed 60% of AGI (“60% ceiling”)
0
$10 ax

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Feb. 2019