1. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax Business Related Deductions

2. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 2 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6)

3. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 3 Automobile Expenses Choose larger of –Actual costs (business use) –Standard mileage rate allowed

4. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 4 Automobile Expenses Business $.?? Moving Medical Charitable Contribution

5. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 5 Automobile Expenses Business $.505 pg 9 – 11 Moving Medical Charitable Contribution Note prev yrs’ amts: ’01 = $.345 ’02 = $.365 ’03 = $.36 ’04 = $.375 ’05 = $.405 $.485 ’06 = $.445 ’07 = $.485

6. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 6 Automobile Expenses Business $.505 pg 9 – 11 Moving Medical Charitable Contribution Note prev yrs’ amts: ’01 = $.345 ’02 = $.365 ’03 = $.36 ’04 = $.375 ’05 = $.405 $.485 ’06 = $.445 ’07 = $.485

7. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 7 Automobile Expenses Business Before 7/1 $.505 After 6/30 $.585 pg 9 – 11 Irs.gov Moving Medical Charitable Contribution Note prev yrs’ amts: ’01 = $.345 ’02 = $.365 ’03 = $.36 ’04 = $.375 ’05 = $.405 $.485 ’06 = $.445 ’07 = $.485

8. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 8 Decision Point TEXTBOOK amounts? UPDATED amounts? For homework, class, and exams, do we use … YOUR vote matters.

9. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 9 Automobile Expenses Choose larger of –Actual costs (business use) –Standard mileage rate allowed Problem 9 – 60 StandardActual

10. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 10 Problem 9 - 60 Standard Business Miles24,000 x Std Rate$.505 Sub-total$12,120 Parking & Tolls 100 Total STD Mileage Allowance$12,120 Actual

11. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 11 Problem 9 - 60 Actual Gas & Oil$ 5,000 Repairs1,400 Depreciation4,700 Insurance & License 1,300 Total to Apportion$12,400 x Bus Use 60% Sub-total$ 7,440 Exp NOT Apportioned 100 Total ACTUAL Costs$ 7,540 Standard

12. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 12 Problem 9 - 60 Standard vs. Actual Total STANDARD Costs$12,120 Total ACTUAL Costs$ 7,540 Choose Larger$12,120 Less: Reimbursement 7,200 Deductible Amount$ 4,920

13. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 13 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6)

14. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 14 Entertainment Expenses “Directly Related” “Associated With” Substantiation Not lavish or extravagant 50% Problem 9 - 20

15. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 15 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6)

16. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 16 Moving Expenses General Requirements –Must move 50 miles –Must stay in new location 39 weeks –Only “direct” expenses deductible

17. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 17 Moving Expenses Prior to 1981 –expenses classified as “direct” and “indirect” –“direct” costs fully deductible; limits on “indirect” costs –costs (in excess of reimbursement) deductible FOR A.G.I.

18. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 18 Moving Expenses 1981 – 1996 –direct and indirect costs deductible FROM –reimbursement included in Gross Income Present Law –only DIRECT costs deductible –costs deductible FOR A.G.I.

19. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 19 Moving Expenses 1981 – 1996 –direct and indirect costs deductible FROM –reimbursement included in Gross Income Present Law –only DIRECT costs deductible –costs deductible FOR A.G.I. Problem 9 – 64

20. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 20 Automobile Expenses Business $50.5 * pg 9 – 11 Moving $.?? Medical Charitable Contribution

21. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 21 Automobile Expenses Business $50.5 * pg 9 – 11 Moving $.19 pg 9 – 19 Medical Charitable Contribution Note prev yrs: $.12 in 2001 $.13 in 2002 $.12 in 2003 $.14 in 2004 $.15 $.22 in 2005 $.20 in 2007

22. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 22 Automobile Expenses Business Before 7/1 $.505 After 6/30 $.585 pg 9 – 11 irs.gov Moving Before 7/1 $.19 After 6/30 $.27 pg 9 – 19 irs.gov Medical Charitable Contribution Note prev yrs: $.12 in 2001 $.13 in 2002 $.12 in 2003 $.14 in 2004 $.15 $.22 in 2005 $.20 in 2007

23. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 23 Decision Point TEXTBOOK amounts? UPDATED amounts? For homework, class, and exams, do we use … You’ve already decided!

24. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 24 Automobile Expenses Business $50.5 pg 9 – 11 Moving $.19 pg 9 – 19 Medical Charitable Contribution

25. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 25 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6)

26. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 26 Education Expenses Ways for education costs to be deductible: –Required by law –Required by employer –Maintain or improve skills Problem 9 – 26

27. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 27 Problem 9 - 26 CPA Review$ 400 Law School4,000 Continuing Education600 $5,000 $500 Deductible FROM – Tier 2 New trade or business personal

28. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 28 Education Expenses Ways for education costs to be deductible: –Required by law –Required by employer –Maintain or improve skills Problem 9 – 26 Problem 9 – 27

29. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 29 Problem 9 - 27 Teachers generally allowed? –Sometimes required by law or employer –Maintain and improve skills New trade or business? –elementary to secondary? –biology to art? –classroom to counselor? –teacher to principal?

30. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 30 Education Expenses Ways for education costs to be deductible: –Required by law –Required by employer –Maintain or improve skills Problem 9 – 26 Problem 9 – 27 Problem 9 – 65

31. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 31 Problem 9 - 65 a.Law school? Not deductible – new trade or bus b.Self-employed accountant? $1,800 FOR c.MBA for executive? $5,000 FROM, Tier 2 d.Graduate courses for teacher? $1,000 FROM, Tier 2 e.Bar review for recent grad? Not deductible – personal

32. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 32 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6)

33. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 33 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6)

34. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 34 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6)

35. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 35 Home Office Expenses Controversial

36. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 36 Home Office Expenses Controversial Requirements: –“exclusive use” –principal place of business (1998) –meetings with customers/clients etc. –separate structure? –“convenience of the employer”

37. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 37 Home Office Expenses Qualifications? Problem 9 – 28 –(do b, a, then c) What’s deductible?

38. http://www.irs.gov/pub/irs-pdf/p587.pdf Pub. 587 page 7

39. Publication 587, page 7 http://www.irs.gov/pub/irs-pdf/p587.pdf

40. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 40 What’s Deductible? Business Incomexxxx Less: Regular Business Expenses x Sub-Totalxxx Home Office Exp Deductible Anyway x Sub-Totalxx Less: Other Home Office Expensesx Net Incomex

41. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 41 See Sch C, page B-21

42. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 42 Form 8829

43. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 43 Home Office Expenses Qualifications? Problem 9 – 28 –(do b, a, then c) What’s deductible? Problem 9 – 67

44. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 44 Problem 9 – 67 Studio deductible? Den deductible?

45. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 45 Problem 9 – 67

46. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 46 Problem 9 – 67

47. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 47 Problem 9 – 67

48. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 48 Problem 9 – 67

49. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 49 Problem 9 – 67

50. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 50 Problem 9 – 67 (a)

51. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 51 Problem 9 – 67 (a)

52. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 52 Problem 9 – 67 (a)

53. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 53 Problem 9 – 67

54. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 54 Problem 9 – 67

55. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 55 Problem 9 – 67 Now What?

56. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 56 Problem 9 - 67 Income$40,000 Exp of Business2,000 Sub-total$38,000 Exp Ded Anyway700 Sub-total37,300

57. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 57 Problem 9 – 67

58. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 58 Problem 9 – 67 (b)

59. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 59 Problem 9 – 67

60. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 60 Problem 9 – 67 (a) Note: 90% of these deductible as itemized deductions.

61. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 61 Problem 9 – 67 (b)

62. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 62 Problem 9 – 67 (b) Income$2,500 Exp of Business2,000 Sub-total$ 500 Exp Ded Anyway Sub-total

63. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 63 Problem 9 – 67 (b)

64. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 64 Problem 9 – 67 (b)

65. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 65 Problem 9 – 67 (b) Income$2,500 Exp of Business 2,000 Sub-total$ 500 Exp Ded Anyway 700 Sub-total($ 200) Other Home Exp -0- Net Income (Loss)($ 200)

66. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 66 Problem 9 – 67 (b)

67. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 67 Problem 9 – 67 (b)

68. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 68 Problem 9 – 67 (b)

69. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 69 Problem 9 – 67 (b) Excess Direct Exp$200 10% of other Exp of Home???

70. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 70 Problem 9 – 67 (b)

71. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 71 Problem 9 – 67 (b) Carryover

72. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 72 Problem 9 – 67 (b) Excess Direct Exp$200 10% of other Exp of Home500 Carryover

73. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 73 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6)

74. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 74 Business Expenses Self-employed –“for” Employee –Reimbursed? Yes=“for” No=“from”

75. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 75 Reimbursements References –Text Table 9 - 2, page 9 - 18 –Publication 17, YFIT, Table 26 - 3 185

76. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 76 Plans Accountable Non-Accountable

77. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 77 Plans Accountable Non-Accountable Recommend Problem 9 - 13

78. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 78 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6)

79. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 79 Reimbursements Problem 9 - 57

80. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 80 Problem 9 – 57 In Textbook

81. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 81 Problem 9 – 57 Reimbursed $3,000 $5,000 60%

82. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 82 Problem 9 – 57

83. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 83 Problem 9 – 57

84. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 84 Problem 9 – 57

85. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 85 Problem 9 – 57

86. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 86 Problem 9 – 57

87. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 87 Problem 9 – 57

88. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 88 Problem 9 – 57 $200 $1,800

89. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 89 Text Page 9 – 57

90. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 90 Another Approach

91. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 91 4,000 1,000

92. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 92 Another Approach 4/5 = 80%1/5 = 20%

93. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 93 Another Approach 4/5 = 80%1/5 = 20%

94. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 94 Another Approach 4/5 = 80%1/5 = 20%

95. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 95 Another Approach

96. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 96 Another Approach

97. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 97 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6) Itemized Deductions

98. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 98 Chapter 9 Travel and Transportation Automobile Expenses Entertainment Moving Expenses Education Expenses Home Office Reimbursements Hobby losses (from Chap 6)

99. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 99 Hobby Losses Criteria Consequences Order of deductible expenses –Tier 1: deductible anyway (itemized) –Tier 2: other exp (not reduce basis) –Tier 3: expenses that reduce basis Problems 6 - 54 and 6 - 55

100. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 100 Problem 6 – 54

101. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 101 Problem 6 – 54

102. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 102 Problem 6 – 54

103. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 103 Problem 6 – 54

104. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 104 Problem 6 – 54

105. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 105 Problem 6 – 54

106. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 106 Problem 6 – 55

107. © Copyright 2001-2008 by M. Ray Gregg. All rights reserved. 107