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Personal Deductions

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Section 262 tell us that, unless expressly provided in the Code, there is no ... Teeth whitening - no. What is the policy behind the medical deduction? ... – PowerPoint PPT presentation

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Title: Personal Deductions


1
Personal Deductions
2
Costs of doing business are deductible (with some
limits we will discuss soon).
3
Section 262 tell us that, unless expressly
provided in the Code, there is no deduction for
personal, living or family expenses.
4
All individual taxpayers get to deduct the
personal exemption and either take the standard
deduction or itemize deductions.
  • See handout on Basic Computation
  • The personal exemption varies with the number of
    dependents.
  • The standard deduction varies with nature of the
    household.
  • Exemptions and the standard deductions get
    adjusted per CPI.
  • Exemptions and itemized deductions are phased out
    as AGI rises above thresholds.

5
We are about to look more closely at the
categories of itemized deductions and the
functions they serve.
6
Look at the below. Why do you think we allow
them? If you had to eliminate one, which would it
be and why.
  • Casualty loss
  • Medical expense
  • Charitable contribution
  • Mortgage interest
  • State property taxes
  • State income taxes

7
Business losses can be deducted nonbusiness
losses can be deducted if they are casualty
losses under section 165(c)(3).
8
The government thus acts as an insurer to extent
of marginal rate on loss deducted.
  • Should the government insure those who choose to
    live in dangerous places?

9
Casualty losses include fire, storm, shipwreck,
or other casualty, or from theft.
10
What is other casualty? Examples termites
no lost engagement ring sometimes.
11
There a suddenness requirement for other
casualty. Why?
12
Dryer v. CIR
13
Now we have two haircuts on the casualty loss
deduction 100 per occurrence and 10 of AGI
per year. See handouts.
14
Chamales v. CIR
15
Blackman v. CIR
16
When a court will decide that a tax benefit is
against public policy is uncertain.
17
Problem in handouts on casualty loss
18
Medical care deduction under sec. 213
19
Medical care deduction Remember the floor of
7.5 of AGI.
  • Does the medical deduction give most to the
    wealthiest or does it define income and help make
    us whole?

20
Under section 213, medical care includes
  • Diagnosis of disease
  • Cure of disease
  • Mitigation of disease
  • Treatment of disease
  • Prevention of disease
  • Purpose of affecting structure of function of
    body
  • Certain transportation costs
  • Certain lodging costs

21
Cosmetic surgery is excluded.
22
Taylor v. CIR
23
Henderson v. CIR
24
Ochs v. CIR
25
But for tests
  • But for the children
  • But for the illness

26
Examples from IRS publication 502 on Medical
Expenses
  • Acupuncture yes
  • Vasectomy yes
  • Crutches yes
  • Guide dog - yes
  • Hair transplant no
  • Health club no
  • Marijuana no
  • Teeth whitening - no

27
What is the policy behind the medical deduction?
28
Charitable contribution deduction
  • Contributions to qualifying organizations can be
    deducted if itemize.
  • Such organizations include schools, museums,
    churches, social service organizations.
  • There are limits on how much AGI can be reduced
    in a year.

29
What might be the policy objective of the
charitable contribution deduction?
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