Liberty Tax Service Online
Basic Income Tax Course.
Lesson 13
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Chapter 12 - Homework
HOMEWORK 1: Find the total 2008 depreciation for each of
the following problems. Use one depreciation worksheet to
figure the depreciation for all of the problems. For prior
and current year property, assume special depreciation
was taken unless it is stated that the taxpayer elected out.
The “depreciation prior year” column in the worksheet is
for record keeping. Do not complete it for this exercise.
All property was placed in service on the purchase date.
1. Office furniture (cost $800), a copier (cost $3,500), and file
cabinets (cost $300) all purchased April 2, 2006 and used
100% for business. In 2006, a $1,000 section 179
deduction was taken for the copier. A computer (cost
$2,500) bought August 10, 2008 and used 75% for
business (no section 179 deduction).
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Chapter 12 - Homework
2. A house used as rental property (purchase price $109,000,
land value $9,000, title insurance and transfer taxes
$1,000) purchased on July 12, 2000. Replacement of all
the shrubbery surrounding the house (cost $3,000) in June
2007. An addition to the house (cost $15,000) completed in
October 2008.
3. A passenger automobile purchased on August 11, 2006 for
$32,000 and driven 60% for business (26,000 total miles
including 15,600 business miles) in 2008.
4. A safe bought in January 2005 (purchase price $3,670,
sales tax $300, shipping charges $30) used 100% for
business and sold in September 2008.
5. An office building (purchase price $167,000, land value
$12,000) purchased June 4, 1992.
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Chapter 12 - Homework
6. A copier (cost $3,000) purchased March 12, 2007 and office
furniture (cost $5,000) purchased November 20, 2007 all
used 100% for business. A computer system (cost
$22,000), used 100% for business, purchased and placed
in service on September 27, 2008 (no section 179
deduction).
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Homework 1
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Chapter 12 - Homework
HOMEWORK 2: Complete a depreciation worksheet and Form
4562 for the following:
Al Katz (SSN 155-22-1221) owns a shoe store called “Al the
Shoe Man”. His net income from shoe sales and repairs in
2008 was $280,000. Al has been in business since 2005
when he made the following purchases:
Building 8/15/2005
Shelving 9/18/2005
$150,000 ($12,000 land value)
$25,000
On 3/3/2006, Al purchased a mini-van for $10,000. The van is
used 100% to make deliveries for the business and is
parked at the store when not in use. In 2008, Al drove the
van 17,000 miles making shoe deliveries(9,100 miles from
January 1 through June 30 and 7,900 miles from July 1
through December 31). Al has a vintage Ford Fairlane he
uses for personal purposes.
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Chapter 12 - Homework
On 7/20/2008, Al purchased a computer system for $3,500
exclusively for business use. He wants to expense $1,500
under section 179 and depreciate the remainder.
Also in July, Al started a major store renovation project which
was ready for use by 7/28/2008. It cost him $25,000.
On 8/15/2008, Al purchased a carpet for the entire store for
$8,000 and paid an additional $700 for delivery. He wants
to take a section 179 deduction for this.
Once the carpet was in place, Al had new store furniture
brought in at a cost of $10,000. It was purchased and
delivered 8/25/2008.
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Chapter 12 - Homework
Homework 2
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Chapter 12 - Homework
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Chapter 12 - Homework
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Chapter 12 - Homework
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Chapter 12 - Homework
12
Chapter 13: Other Itemized Deductions
Chapter Content
 Casualty and Theft Losses
 Job Expenses
 Travel Expenses
 Entertainment Expenses
 Gifts
 Local Transportation
 Car Expenses
 Job Related Education Expenses
 Most Other Miscellaneous Deductions
 Key Ideas
Objectives
 Understand How to Figure and Report Casualty and Theft
Losses on Schedule A
 Determine What Job Expenses an Employee Can Deduct on
Schedule A
 Know How to Complete Form 2106
13
Other Itemized Deductions
CASUALTY AND THEFT LOSSES are losses suffered
because of damage to or loss of your nonbusiness
property, such as your home.
JOB EXPENSES AND MISCELLANEOUS DEDUCTIONS are
deductions for ordinary and necessary business
expenses you incur as an employee and for expenses
related to producing or managing income or paying
taxes. Only expenses that exceed 2% of your
adjusted gross income are deductible.
14
Other Itemized Deductions
Schedule A
15
CASUALTY AND THEFT LOSSES
A. This is a limited deduction for expenses incurred
from theft of or damage to personal property (your
home, your personal car, or other non-business
property).
1. Determine whether the loss results from a
casualty or theft under IRS rules.
2. Complete Form 4684 to figure the amount of the
loss and the amount you can deduct.
3. Enter the deduction on line 20 of Schedule A.
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CASUALTY AND THEFT LOSSES
Casualty Loss
B. A casualty is damage, destruction or loss of property
resulting from an identifiable event that is sudden,
unexpected, or unusual such as:
1. Car accidents
2. Earthquakes
3. Fires
4. Floods
5. Terrorist attacks
6. Storms
7. Hurricanes, tornadoes
8. Vandalism.



A sudden event is one that is swift, not gradual or
progressive.
An unexpected event is one that is ordinarily
unanticipated and unintended.
An unusual event is one that is not a day-to-day
occurrence and that is not typical of the activity in which
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you were engaged.
CASUALTY AND THEFT LOSSES
C. Casualty losses do not include damage from
progressive deterioration (e.g., damage caused by
termites) or damage caused by ordinary accidents or
willful acts or negligence.
All of Sue’s plants and shrubs were destroyed by an
unusual and unexpected infestation of beetles.
Because this loss was sudden, unexpected, and
unusual it would qualify as a casualty loss. Damage
to her plants over time by the usual insects and pests
native to her area would not qualify as a casualty
loss.
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CASUALTY AND THEFT LOSSES
D. To prove a casualty loss your records must show all
the following:
1.
2.
3.
4.
The type of casualty
The date the casualty occurred
The loss was a direct result of the casualty
You owned the property, or were contractually
liable for the loss for leased property.
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CASUALTY AND THEFT LOSSES
Theft Loss
E. A theft is the illegal taking and removing of
money or property with the intent to deprive
the owner of it. Theft includes crimes such
as:
1.
2.
3.
4.
5.
Blackmail
Burglary
Embezzlement, extortion
Kidnapping
Robbery
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CASUALTY AND THEFT LOSSES
F. To prove a theft loss your records must
show all the following:
1. The date you discovered the property was
missing.
2. That your property was stolen.
3. That you were the owner of the property.
The best record is a police report. Notify the
police of any theft of your property.
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AMOUNT OF LOSS
A. The amount of your casualty or theft loss is
the smaller of :
1. The adjusted basis of the property before
the casualty or theft, or,
2. The decrease in the FMV of the property
as a result of the casualty or theft minus any
insurance or other reimbursements you
receive or expect to receive.
B. Adjusted basis is the basis increased or
decreased by items such as improvements
and previous casualty loss claimed.
C. Decrease in FMV is the difference between
the value of the property immediately
before and immediately after the casualty or
theft.
22
AMOUNT OF LOSS – Problem 1
Nick’s wallet containing $700 is stolen. He reported the
theft to the police. The decrease in the value of his
property is $700. He can claim a loss of $700.
Nick ran his car into a pole. Before the accident his car
was worth $6,200. After the accident the FMV was
$2,000. The decrease in the value of the car is $4,200
($6,200-$2,000). If Nick had paid $12,000 for the
car, what is the amount of loss Nick can claim?
a. $12,000
b. $ 4,200
c. $ 6,200
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AMOUNT OF LOSS – Problem 1
Nick ran his car into a pole. Before the accident his car
was worth $6,200. After the accident the FMV was
$2,000. The decrease in the value of the car is $4,200
($6,200-$2,000). If Nick had paid $12,000 for the
car, what is the amount of loss Nick can claim?
b. $ 4,200
The amount of his loss would be $4,200 which is the
smaller of the adjusted basis or the decrease in FMV.
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AMOUNT OF LOSS
Figuring the Decrease in FMV
D. To figure the decrease in fair market value, you
generally need an appraisal.
E. You can use the cost of clean up and repairs to
measure the decrease in value if:
1. The repairs are necessary to bring the property
back to its condition before the casualty.
2. The amount spent for the repairs is not excessive
3. The repairs are only to take care of the damage
4. The repairs do not increase the value of the
property to more than its value before the
casualty.
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AMOUNT OF LOSS
Gloria and Jim’s living room furniture was damaged in a
fire. The furniture was worth $2,300 immediately
before the fire. They paid $800 to repair the damage.
They can use the $800 figure as the decrease in the
FMV as a result of the fire.
Sandy’s deck was damaged in a tornado. The deck was
worth $1,400 immediately before the damage. Sandy
decided to not only repair the damage but also to
enlarge and improve the deck and she paid $1,200 to
do this. She cannot use $1,200 to measure the
decrease in FMV.
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AMOUNT OF LOSS
F. If your car is damaged or stolen, the books
issued by automobile organizations that list
your car may be used in figuring the value
of your car. You can modify the book’s retail
value by such factors as mileage and the
condition of your car.
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AMOUNT OF LOSS
Reimbursements
G. You must reduce the amount of your loss by any
reimbursement you receive or expect to receive even
if you will not receive it until a later tax year.
1. The most common type of reimbursement
is an insurance payment
2. If your property is insured, you must file a claim in
order to take the deduction.
Eve’s car is damaged in an accident. Under her
insurance policy, she is responsible for the first $500
of damages to her car. Eve can claim a casualty loss
of $500 (subject to the deduction limits) on Schedule
A even if she does not file an insurance claim.
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AMOUNT OF LOSS
H. If a single casualty or theft involves more
than one item of personal property, you
must figure the loss on each item
separately.
Then combine the losses to figure your total
loss from that casualty or theft.
To figure the loss on personal use real
property, treat the entire property
(buildings, trees, shrubs, improvements) as
one item.
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DEDUCTION LIMITS
Once you have figured the amount of your loss, you
must apply two limits to the loss to determine the
amount you can deduct. The limits are referred to
as the $100 rule and the 10% rule. These limits
may prevent you from deducting any part of your
loss.
The $100 Rule
A. Reduce each casualty or theft loss caused by a
single event by $100 (the $100 rule), and
The 10% Rule
B. Reduce the total of all your losses (after reducing
each by $100) by 10% of your AGI (the 10% rule).
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DEDUCTION LIMITS
A tornado damaged Rich’s home and car. The tornado is
a single event, which causes damage to the two
items. Rich figures the loss on the home and car
separately and then combines the losses and reduces
the combined amount by $100.
Earlier in the year Rich’s wallet, containing $1,000, was
stolen. This is a loss from a separate event. Rich
must also reduce the $1,000 loss by $100.
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DEDUCTION LIMITS
Rich had an AGI of $32,000. His total loss from the
tornado event was $1,000. He applies the deduction
limit rules as follows:
Tornado
Theft
Loss
$10,000
$1,000
Minus $100
100
100
Loss after $100 rule
$ 9,900
$ 900
Total loss
$10,800
Minus 10% of AGI
$ 3,200
Amount of deduction
$ 7,600
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FIGURING THE CASUALTY AND
THEFT DEDUCTION
C. Use Section A of the Form 4684 to figure your
deduction for a casualty or theft loss of personal-use
property.
1. Use a separate Form 4684 to figure the loss
caused by each casualty or theft event
2. Apply the $100 limit to each loss
3. Combine the gains and losses on one Form 4684
and reduce the combined loss by 10% of your AGI
4. Complete Form 4684 with the combined totals and
file all Forms 4684 with your return.
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FIGURING THE CASUALTY AND
THEFT DEDUCTION
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FIGURING THE CASUALTY AND
THEFT DEDUCTION
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FIGURING THE CASUALTY AND
THEFT DEDUCTION
When To Deduct A Loss
D. Deduct a theft loss in the year you discover the theft;
deduct a casualty loss for the year the casualty occurs.
E.
Different rules apply to losses of personal use property
attributable to federally declared disasters.
1. The net disaster loss is not subject to the 10% of
adjusted gross income limit
2. You can deduct a net disaster loss even if you do not
itemize your deductions. You do this by completing
Form 4684 and entering the net disaster loss on line 6
of the Standard Deduction Worksheet – Line 40 in the
Form 1040 instructions.
3. Your net disaster loss is the excess of –
a. Your personal losses attributable to a
Federally declared disaster area
over
b. Your personal casualty gains.
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FIGURING THE CASUALTY AND
THEFT DEDUCTION
If you suffer a casualty in a Federally declared
disaster area, you can deduct the loss for
either the year the casualty occurred or for
the immediately preceding year.
In March of 2008, Mallory suffers a casualty
loss from a flood. Her town is declared a
federal disaster area as a result of the flood.
Mallory can deduct the loss on her 2007 tax
return due in April 2008 or on her 2008 tax
return due in April 2009. If Mallory had
already filed her 2007 tax return she could
file an amended return.
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JOB EXPENSES
A. As an employee you can claim unreimbursed
expenses that are:
1. Paid or incurred during the tax year
2. For carrying on your job as an employee
3. Ordinary (common and accepted) and
necessary (appropriate and helpful) business
expenses.
B. These deductions are entered on line 21 of Schedule
A and included in the total on line 27.
1. You can only deduct the amount that exceeds 2%
of AGI
2. You must complete Form 2106 if you are claiming
certain expenses.
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JOB EXPENSES
Travel Expenses
A. May be deductible if you temporarily travel away
from your tax home for your job.
1. Your tax home is your regular place of
business or post of duty
2. You are away from your tax home if you are
required to be away from the general area of
your tax home longer than an ordinary work day
and you need to get sleep or rest
3. A temporary assignment is one that is expected to
last (and does last) for one year or less.
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JOB EXPENSES
Shawn’s regular place of business is in Derby, a 4-hour drive
from her home in Runyon. She chooses to rent a room in
Derby and return to her family home on the weekends. Her
tax home is in Derby. She cannot deduct any of her
expenses related to travel between Derby and Runyon.
Will drives a truck. He leaves the terminal and returns to it
later the same day. He gets an hour off for lunch. Because
the time off is not for necessary sleep or time for an
adequate rest period, the trip is not travel away from home
and his expenses are not deductible.
Betty lives and works in Appleton, WI. Her employer requires
that she attend a weeklong conference in Los Angeles.
Because she will be gone longer than an ordinary workday
and will have time off to get necessary sleep, her expenses
are deductible.
40
JOB EXPENSES – Problem 1
Chris is a prison guard. His personal residence is in
Rochester, NY. He is assigned to a prison located
300 miles from Rochester for two years. After the
two-year period, he will be able to choose a prison
which is in commuting distance from Rochester. He
chooses to keep his home and family in Rochester
and come home weekends. Because his job
assignment will last for more than one year, it is
indefinite and the job location is Chris’ new tax
home. Chris can deduct the expenses related to
traveling to and living near his job as travel
expenses.
True or False?
41
JOB EXPENSES – Problem 1
Chris is a prison guard. His personal residence is in
Rochester, NY. He is assigned to a prison located
300 miles from Rochester for two years. After the
two-year period, he will be able to choose a prison
which is in commuting distance from Rochester. He
chooses to keep his home and family in Rochester
and come home weekends. Because his job
assignment will last for more than one year, it is
indefinite and the job location is Chris’ new tax
home. Chris can deduct the expenses related to
traveling to and living near his job as travel
expenses.
False, he cannot deduct the expenses. Because his job
assignment will last for more than one year, it is
indefinite and the job location is Chris’ new tax
home.
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JOB EXPENSES
DEDUCTIBLE TRAVEL EXPENSES
B. Ordinary and necessary traveling expenses are deductible.
1. Refer to Table 13-1 for travel expenses you can deduct
2. To figure your meal expense you can use the actual cost
or a standard meal allowance of $39 per day for 2008
for most small localities. There are higher rates for
most major cities and some other localities in the
continental United States.
3. Whichever method you use, you can deduct only 50%
(unless subject to the “hours of service” limits of
Department of transportation, then limit is 80%) of
your unreimbursed meal expenses.
4. Transportation workers can claim a $52 standard meal
allowance for most localities in the United States. The
rate for areas outside the U.S. is $58.
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JOB EXPENSES
44
JOB EXPENSES
Entertainment Expenses
A. You can deduct ordinary and necessary
entertainment expenses only if they are either
directly related to your business or associated with
your business.
1. Entertainment meets the directly related test if it:
takes place in a clear business setting or the main
purpose of the entertainment was the conduct of
business; you did in fact engage in business; and
you had more than a general expectation of
getting income or some other business benefit.
2. Entertainment meets the associated test if it: is
associated with the active conduct of your trade or
business; and directly precedes or follows a
substantial business discussion.
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JOB EXPENSES
Gordon works for Giant Foods. One of his customers is
in town and Gordon takes him to the theater. They
discuss some business. Gordon cannot deduct the
cost of the theater tickets.
If, in the above example, Gordon and the customer had
come from a negotiation session at Gordon’s office,
the cost of the theater tickets would be a deductible
entertainment expense for Gordon. The
entertainment followed a substantial business
discussion.
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JOB EXPENSES
THE 50% LIMIT
B. In general, you can deduct only 50% of business
related entertainment and meal expenses (including
taxes, tips, etc.)
1. If you have one bill for meals, lodging,
transportation, etc., you must allocate the
expense between the cost of meals and
entertainment and the cost of other services.
C. Refer to Table 13-2 for a summary of the rules for
the 50% limit.
47
JOB EXPENSES – Problem 2
Gordon bought the theater tickets through a ticket
agent. His total cost was $170. The tickets were $75
each and the agent’s fee was $20. How much can
Gordon deduct for entertainment expenses?
a. $170
b. $150
c. $ 75
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JOB EXPENSES – Problem 2
Gordon bought the theater tickets through a ticket
agent. His total cost was $170. The tickets were $75
each and the agent’s fee was $20. How much can
Gordon deduct for entertainment expenses?
c. $75
His deduction cannot be more than $75 (50% of $150).
49
JOB EXPENSES – Problem 3
Opal is attending a three-day out-of-town business
meeting. Her hotel bill includes the cost of several
meals she ate at the hotel. Does Opal have to
separate the cost of the meals from the charge for
lodging?
Yes or No?
50
JOB EXPENSES – Problem 3
Opal is attending a three-day out-of-town business
meeting. Her hotel bill includes the cost of several
meals she ate at the hotel. Does Opal have to
separate the cost of the meals from the charge for
lodging?
Yes
Because the meals are subject to the 50% rule.
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JOB EXPENSES
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JOB EXPENSES
Gifts
A. The cost of gifts given directly or indirectly to a
customer is deductible up to a maximum of $25 per
customer.
1. A gift to a member of a customer’s family is
considered an indirect gift to the customer
2. If both spouses give gifts, they are treated as one
taxpayer with one $25 limit per customer
3. Pens, key chains, coffee mugs, etc. costing less
than $4, with your business name clearly
imprinted, and used for promotional purposes are
not included in the $25 limit.
B. An item that could be either a gift or an
entertainment expense is generally considered to be
an entertainment expense.
53
JOB EXPENSES – Problem 4
Dick and Jane both work for the Crockett Co. They file
MFJ. Dick gives his customer Mrs. Jones a gift basket
costing $45. Mrs. Jones is also Jane’s customer for a
different product the company sells. Jane gives her a
radio costing $70. What amount can Dick and Jane
deduct for gifts given to Mrs. Jones?
a. $25
b. $75
c. $45
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JOB EXPENSES – Problem 4
Dick and Jane both work for the Crockett Co. They file
MFJ. Dick gives his customer Mrs. Jones a gift basket
costing $45. Mrs. Jones is also Jane’s customer for a
different product the company sells. Jane gives her a
radio costing $70. What amount can Dick and Jane
deduct for gifts given to Mrs. Jones?
a. $25
55
JOB EXPENSES
Local Transportation
A. Deductible expenses include the ordinary and
necessary costs of business related transportation
within the area of your tax home. (See When are
Local Transportation Expenses Deductible? on page
13-18)
1. Going from one workplace to another
2. Visiting clients
3. Going to a business meeting away from your
regular workplace
4. Going from home to a temporary workplace if you
have one or more regular workplaces (a
temporary workplace can be outside your tax
home area).
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JOB EXPENSES
Beth’s employer sends her to a three-day training
course in the same city as her regular workplace.
Beth travels directly from her home to the training
site and returns each day. Because the training
course location is considered a temporary work site
and she also has a regular worksite, she can deduct
the cost of her daily round trip transportation
between her home and her training location.
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JOB EXPENSES
B. Expenses include the cost of transportation by air,
rail, bus, taxi, etc. and the cost of driving and
maintaining your car.
C. Commuting expenses are never deductible and
include:
1. Travel between your home and your regular place
of business.
2. Parking fees at your regular place of business
3. Car pool costs for using your car in a nonprofit car
pool.
4. Travel from a union hall where you get your work
assignment to your place of work.
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59
JOB EXPENSES
Car Expenses
A. The rules for deductibility of car expenses apply whether
your car is used for local transportation or travel away
from home.
B. Car includes a van, pickup, or panel truck.
C. You can figure your expenses using the standard mileage
rate (50.5 cents a mile from Jan 1 thru Jun 30 and 55.5
cents a mile from Jul 1 thru Dec 31, 2008) or actual
expenses.
D. You cannot use the standard mileage rate if you:
1. Use the car for hire (a taxi)
2. Operate five or more cars at the same time
3. Claimed MACRS in an earlier year
4. Claimed a section 179 deduction
5. Claimed the special depreciation allowance on the car
6. Claimed actual expenses for a leased car after 1997
7. Are a rural mail carrier who received a qualified
reimbursement
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JOB EXPENSES
E. Actual expenses include depreciation, and the cost of lease
payments, tires, insurance, registration fees, licenses, gas
and oil.
F. You can claim business related parking fees and tolls
whichever method you use.
G. Divide expenses between personal and business use of the
car based on miles driven for each purpose.
H. Claim depreciation or section 179 deduction only if you
own the car.
1. Only the percentage of the cost basis used for business
is depreciable
2. To use MACRS GDS, your business use of the car must be
more than 50%
3. There is a dollar limit to the amount you can depreciate
every year (including the section 179 deduction). See
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Table 12-4 in Chapter 12.
JOB EXPENSES
The first-year depreciation limitation for autos
placed in service in 2008 is $10,960
($11,160 for trucks and vans) if the 50%
special depreciation allowance is claimed,
and $2,960 ($3,160 for trucks and vans) if it
is not. Your section 179 deduction plus your
depreciation deduction cannot exceed this
limit. Autos rated at more than 6,000
pounds loaded gross vehicle weight are not
subject to these limits. If your business use
of the car is less than 100%, the limit is
multiplied by the percentage of business use
to determine the reduced limit.
62
JOB EXPENSES – Problem 5
Phil bought a new car in May of 2008 for $22,000 and
used it 75% for business. A car is 5-year property,
so the depreciation deduction computed using
MACRS Table A-1 is $3,300 (75% of $22,000 =
$16,500 x 20% = $3,300). However, the first year
limit is $10,960. What is the depreciation deduction
that Phil can take in 2008?
a. $3,300
b. $10,960
c. $8,220
63
JOB EXPENSES – Problem 5
Phil bought a new car in May of 2008 for $22,000 and
used it 75% for business. A car is 5-year property,
so the depreciation deduction computed using
MACRS Table A-1 is $3,300 (75% of $22,000 =
$16,500 x 20% = $3,300). However, the first year
limit is $10,960. What is the depreciation deduction
that Phil can take in 2008?
c. $8,220
Phil can take a depreciation deduction of 75% of
$10,960 is $8,220.
64
JOB EXPENSES – Problem 6
Phil, in the previous example, had a car with a
qualifying cost of $16,500 for his section 179
deduction. However, Phil is limited to a total section
179 deduction plus depreciation deduction of $8,220
($10,960 first year limit x 75%). If he uses the entire
$8,220 as a section 179 deduction, will he also be
able to take a depreciation deduction in 2008?
Yes or No?
65
JOB EXPENSES – Problem 6
Phil, in the previous example, had a car with a
qualifying cost of $16,500 for his section 179
deduction. However, Phil is limited to a total section
179 deduction plus depreciation deduction of $8,220
($10,960 first year limit x 75%). If he uses the entire
$8,220 as a section 179 deduction, will he also be
able to take a depreciation deduction in 2008?
No
And his depreciation basis for future years is $8,280
($16,500- $8,220).
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JOB EXPENSES
Beverly bought a new car on September 21,
2008 for $20,000 and placed it in service
immediately, using it 80% for business. The
car is qualified property for the special
depreciation allowance. Beverly does not
claim a section 179 deduction but she does
want to claim the 50% special depreciation
allowance. . She first figures the cars
depreciable basis which is $16,000 ($20,000
x 80% business use). She then figures the
special depreciation allowance before
figuring the regular MACRS depreciation
deduction. The special depreciation
allowance is $8,000 ($16,000 x 50%).
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JOB EXPENSES
Beverly uses the remaining $8,000 ($16,000$8,000) as the depreciable basis for the
regular MACRS deduction resulting in a
deduction of $1,600 ($8,000 x 20%). Her
2008 total deduction is $9,600 ($8,000+
$1,600). However, under the maximum
limit for 2008 she will be able to deduct
only $8,768 ($10,960 maximum limit for
2008 x 80% business use).
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JOB EXPENSES
I. For a leased car:
1. Use standard mileage or actual expenses except for
depreciation.
2. Deduct expenses only for business use of car
3. If you lease for 30 days or more, reduce the
deduction by an inclusion amount.
69
JOB EXPENSES
Recordkeeping
A. You are required to keep records if you deduct
travel, entertainment, gift, or local transportation
expenses.
1. Records should be written
2. Keep bills, receipts, and canceled checks
3. If you are audited and do not have these records,
the deduction will be disallowed
4. Table 13-3 provides a summary of the records you
need to prove each expense.
70
JOB EXPENSES
71
JOB EXPENSES
Job-Related Education Expenses
A. Expenses deductible on Schedule A must be for jobrelated education that:
1. Is required by your employer or by law to keep
your present salary, status, or job, or
2. Maintains or improves skills needed in your present
work.
Sumiko is an associate lawyer in a law firm. To keep up
with the latest changes in the law, she takes
courses in her field of law. These courses maintain
and improve her skills at her present job and she
can deduct the cost of the courses as an employee
expense on Schedule A.
72
JOB EXPENSES
B. Even if these requirements are met, no Schedule A
deduction is allowed if the education is:
1. Needed to meet the minimum education
requirements of your job, or
2. Part of a program of study that can qualify you for
a new trade or business.
a. Instead, you may be able to claim these
education expenses as a tuition and fees
adjustment (Chapter 16) or lifetime learning
credit (but not for the same expenses).
C. Refer to Table 13-4 to determine if education
expenses qualify for the deduction.
73
JOB EXPENSES
When Sumiko was in law school, she worked part time
for the same law firm for which she now works. Even
though her courses improved her job skills, she had
not met the minimum requirements to be an
attorney. She could not deduct the expenses of the
courses she took while employed at the firm as a jobrelated expense deduction on Schedule A.
James is a legal secretary. He takes courses at the local
community college that lead to a paralegal
certificate. He cannot deduct the cost of these
courses on Schedule A because they qualified him for
a new trade. The cost of courses may be qualifying
expenses for an education credit.
74
JOB EXPENSES
75
JOB EXPENSES
DEDUCTIBLE EDUCATION EXPENSES
D. Deductible education expenses include costs for:
1. Tuition, books, lab fees, supplies and similar items
2. Transportation from work to school
3. Transportation from home to school if you are
regularly employed and go to school on a
temporary basis
4. Travel, meals, and lodging for overnight travel to
obtain qualified education
5. Related expenses, such as the costs of research.
E. You must keep records to prove your education
deduction.
76
JOB EXPENSES
Employer Reimbursements
A. If your employer does not reimburse you for workrelated expenses, any allowable expense is fully
deductible subject to the 2% and AGI limits.
B. If your employer does reimburse you, deductibility
depends on the type of reimbursement plan you
have.
C. Accountable plan.
1. Reimbursements not included in wages and are
not taxed
2. Cannot claim a deduction for any amount for which
reimbursed.
77
JOB EXPENSES
D. Non-accountable plan.
1. The entire amount of the reimbursement is
included as wages in box 1 of Form W-2 and is
taxed
2. All eligible expenses are deductible on Schedule A
78
JOB EXPENSES
Form 2106
A. You must use Form 2106 to figure and report:
1. Travel, car and other local transportation expenses
whether or not you are reimbursed for them.
2. Depreciation and other information on vehicles.
3. All other expenses for which you are reimbursed
under an accountable plan.
4. Table 13-5 summarizes what the employer reports
on your Form W-2 and what you report on Form
2106.
79
80
JOB EXPENSES
Al Flaherty is a representative of a shoe company. On January
14, 2008, he purchased a new car. In 2008, Al kept a log
of his mileage which showed he drove a total of 25,000
miles of which 20,000 were for business. He logged
12,000 business miles from January 1 to June 30, 2008.
His round-trip commute to work is 5 miles resulting in a
total of 1,350 commuting miles. Al claims the standard
mileage rate. His other business expenses were as
follows:
• Parking fees and tolls $325
• Transportation and lodging away from home
$8,975
• Meals and entertainment $4,432
• Education, gifts, publications, etc. $750
Al received a $3,600 reimbursement for his travel expenses
and a $1,200 reimbursement for his entertainment and
meal expenses under his employer’s accountable plan. Al
completed Form 2106 as follows:
81
JOB EXPENSES
82
JOB EXPENSES
83
JOB EXPENSES
84
JOB EXPENSES
85
JOB EXPENSES
Al first figured his car expenses in Part II of Form 2106. He
then entered these expenses Part I, on line 1 of column A.
Column A is for expenses other than meals and
entertainment. On line 2, Al entered his local
transportation expenses (parking and tolls). His expenses
for travel away from home are entered on line 3 and his
other expenses such as education, gift and publication
expenses are entered on line 4.
Column B is only for meal and entertainment expenses. The
entire amount of Albert’s meal and entertainment expenses
are entered on line 5 of Part I. The reimbursements
received from his employer for meals and entertainment
and other expenses are entered separately on line 7 in
both column A and column B. After these reimbursements
are subtracted from the expenses, the 50% limit is applied
to the unreimbursed amount spent for meals and the result
is entered on line 9. The total unreimbursed expenses from
line 10 of Form 2106 are entered on line 21 of Schedule A.
86
JOB EXPENSES
Other Unreimbursed Employee Expenses
B. Unreimbursed expenses for items such as safety
equipment, uniforms, protective clothing and dues can be
entered directly on line 21 of Schedule A (do not have to
use Form 2106).
Computers and cellular phones. To claim a deduction for
depreciation for computers or cellular telephones that you
use in your work as an employee, you must be able to show
that the use of the computer or phone is:
• for the convenience of your employer, and
• required as a condition of your employment.
Home-office deduction. To claim a home-office deduction as
an employee, the business use of your home must be for
the convenience of your employer and not just appropriate
and helpful to your employer. For the convenience of your
employer generally means that your employer does not
provide you with a place to work.
87
MOST OTHER MISCELLANEOUS
DEDUCTIONS
A. Line 22 of Schedule A is used to report tax
preparation and related costs such as the cost of tax
preparation software, tax publications and
electronic filing fees.
B. Line 23 of Schedule A is used to report certain other
expenses you pay to:
1. Produce or collect income that must be
included in your gross income,
2. Manage, conserve, or maintain property held
for producing such income, or
3. Determine, contest, pay, or claim a refund of
any tax.
88
MOST OTHER MISCELLANEOUS
DEDUCTIONS
C. These other expenses include fees for: safe deposit
box rental to store investment documents;
investment counseling; investment-related office
supplies; legal fees related to paying or contesting
taxes.
D. On line 27 of Schedule A you deduct only those
expenses that exceed 2% of AGI.
89
Other Itemized Deductions
KEY IDEAS
♦ Only casualty and theft losses related to non-business
property are deductible on line 20 of Schedule A.
♦ A deductible casualty loss results from an event that is
sudden, unexpected, or unusual. Each casualty or theft loss
must be reduced by $100. The total of all of your casualty
or theft losses must be reduced by 10% of your AGI.
♦ Special rules apply losses of personal property in federally
declared disaster areas and the Kansas and Midwestern
disaster areas.
♦ Only business-related expenses for travel away from your
tax home are deductible. Your tax home is your regular
place of business or post of duty regardless of where your
personal residence is.
♦ You can deduct only 50% of your business-related meal and
entertainment expenses, 75% if Department of
90
Transportation “hours of service” rules apply.
Other Itemized Deductions
KEY IDEAS
♦ You can deduct as a job-related expense only the cost of
education that is required by your employer or that is
required by law or that maintains or improves skills needed
in your present work.
♦ The deduction for tax preparation fees includes the cost of
tax preparation software and tax publications and any fee
you paid for electronic filing of your tax return.
♦ To be deductible, expenses paid to produce or collect
taxable income or to manage, conserve, or maintain
property held for producing taxable income must be
reasonable and closely related to these purposes.
♦ You can deduct on line 27 of Schedule A only those total job
expenses and other miscellaneous deductions that exceed
2% of your AGI.
91
Other Itemized Deductions
CLASSWORK 1: True or False.
(1) Chauncy pays dues to the Greenwood Country Club. He
uses the club exclusively to entertain his customers and to
discuss business with them. Chauncy can deduct his dues
as an entertainment expense.
(2) In March 2008, Kate suffered a casualty loss from a flood.
The President declared her town a disaster area. Kate can
deduct the loss even if she does not itemize her
deductions.
(3) Each year you can choose to claim either actual car
expenses or to use the standard mileage rate, regardless
of which method was used in the first year the vehicle was
placed in service.
92
Other Itemized Deductions
CLASSWORK 1: True or False.
(4) Danny is a welder. He is required to buy a blue work shirt
and blue pants for his job. Danny can deduct the cost of
buying and caring for these clothes.
(5) After their house was damaged in November 2008, Mr.
and Mrs. Paulson filed a claim with their insurance
company for $37,000. They must use the reimbursement
amount of $37,000 to figure their casualty loss even if
they do not receive the insurance payment in 2008.
(6) Gil lives in River City. He is assigned to work for 16
months at a branch plant in Margaretville which is 300
miles away. He keeps his home and family in River City
and comes home on weekends. He can deduct his travel
expenses from his home to his work place as employee
expenses on Schedule A.
93
Other Itemized Deductions
CLASSWORK 1: True or False.
(7) Francine works as a sales rep for a software company. Her
biggest client is in town and they meet at her office to
discuss next month’s orders. Francine then takes her
client to dinner and the theater. The costs of dinner and
the theater tickets are deductible entertainment
expenses.
(8) Clyde is an accountant. In 2008, his business office was
damaged by a tornado. The amount of his loss was
$14,000. He had no insurance. He can claim a casualty
loss on line 20 of Schedule A.
(9) If you are reimbursed by your employer for job-related
expenses under an non-accountable plan, you cannot
deduct your expenses on Schedule A.
94
Other Itemized Deductions
CLASSWORK 1: True or False.
(10) Alberto works in a bank. His employer requires him to
wear a suit every day. Since this is a condition of his
employment, he can deduct the cost of the suits.
(11) Colleen is a medical technician. Every weekday she
drives from her home to her employer’s main office. In
the afternoon, she drives from the main office to a
branch office in the suburbs. The cost of her
transportation between the offices is deductible on
Schedule A.
(12) In May 2008, Arnie was away on business for 10 days.
He chooses to use the standard meal allowance for his
deduction for meals and incidentals. He is not a
transportation worker. Arnie will be able to include $390
for meals on line 21 of Schedule A.
95
Other Itemized Deductions
CLASSWORK 1: True or False.
(13) Marva's house was broken into and her diamond
necklace was stolen. She paid $6,000 to replace the
necklace. Marva can use $6,000 as the amount of her
loss.
(14) Caroline is going to school for her accounting degree.
She works part time for a firm that will hire her after she
gets her degree. The firm requires a degree for all full
time employees. Caroline can deduct the cost of the
courses she takes while she is employed part time as a
job-related education expense on Schedule A.
(15) In April 2008, Wilson was in a car accident and had an
Unreimbursed loss. In August, flooding damaged his
garage. He must reduce each of these losses by $100.
96
Other Itemized Deductions
CLASSWORK 1: True or False.
(1) Chauncy pays dues to the Greenwood Country Club. He
uses the club exclusively to entertain his customers and to
discuss business with them. Chauncy can deduct his dues
as an entertainment expense. F
(2) In March 2008, Kate suffered a casualty loss from a flood.
The President declared her town a disaster area. Kate can
deduct the loss even if she does not itemize her
deductions. T
(3) Each year you can choose to claim either actual car
expenses or to use the standard mileage rate, regardless
of which method was used in the first year the vehicle was
placed in service. F
97
Other Itemized Deductions
CLASSWORK 1: True or False.
(4) Danny is a welder. He is required to buy a blue work shirt
and blue pants for his job. Danny can deduct the cost of
buying and caring for these clothes. F
(5) After their house was damaged in November 2008, Mr.
and Mrs. Paulson filed a claim with their insurance
company for $37,000. They must use the reimbursement
amount of $37,000 to figure their casualty loss even if
they do not receive the insurance payment in 2008. T
(6) Gil lives in River City. He is assigned to work for 16
months at a branch plant in Margaretville which is 300
miles away. He keeps his home and family in River City
and comes home on weekends. He can deduct his travel
expenses from his home to his work place as employee
expenses on Schedule A. F
98
Other Itemized Deductions
CLASSWORK 1: True or False.
(7) Francine works as a sales rep for a software company. Her
biggest client is in town and they meet at her office to
discuss next month’s orders. Francine then takes her
client to dinner and the theater. The costs of dinner and
the theater tickets are deductible entertainment
expenses. T
(8) Clyde is an accountant. In 2008, his business office was
damaged by a tornado. The amount of his loss was
$14,000. He had no insurance. He can claim a casualty
loss on line 20 of Schedule A. F
(9) If you are reimbursed by your employer for job-related
expenses under an non-accountable plan, you cannot
deduct your expenses on Schedule A. F
99
Other Itemized Deductions
CLASSWORK 1: True or False.
(10) Alberto works in a bank. His employer requires him to
wear a suit every day. Since this is a condition of his
employment, he can deduct the cost of the suits. F
(11) Colleen is a medical technician. Every weekday she
drives from her home to her employer’s main office. In
the afternoon, she drives from the main office to a
branch office in the suburbs. The cost of her
transportation between the offices is deductible on
Schedule A. T
(12) In May 2008, Arnie was away on business for 10 days.
He chooses to use the standard meal allowance for his
deduction for meals and incidentals. He is not a
transportation worker. Arnie will be able to include $390
for meals on line 21 of Schedule A. F
100
Other Itemized Deductions
CLASSWORK 1: True or False.
(13) Marva's house was broken into and her diamond
necklace was stolen. She paid $6,000 to replace the
necklace. Marva can use $6,000 as the amount of her
loss. F
(14) Caroline is going to school for her accounting degree.
She works part time for a firm that will hire her after she
gets her degree. The firm requires a degree for all full
time employees. Caroline can deduct the cost of the
courses she takes while she is employed part time as a
job-related education expense on Schedule A. F
(15) In April 2008, Wilson was in a car accident and had an
unreimbursed loss. In August, flooding damaged his
garage. He must reduce each of these losses by $100. T
101
Other Itemized Deductions
CLASSWORK 2: Multiple Choice.
1.
2.
In 2008, Samantha and Sam had unreimbursed employee
expenses of $3,400, paid tax preparation fees of $600
and paid $200 for investment journals and a safe deposit
box. Their adjusted gross income for 2008 is $53,000.
The deduction they will claim on line 27 of Schedule A is:
a. $4,200
b. $1,060
c. $3,140
d. $4,000
You cannot use the standard mileage rate for the same
vehicle if:
a. you used actual expenses for the vehicle in the first
year
b. you leased a car
c. you used the car partly for personal use
d. you claimed a depreciation deduction using MACRS
depreciation in an earlier year
102
Other Itemized Deductions
CLASSWORK 2: Multiple Choice.
3. In 2008, Derrick had deductible travel, local transportation,
entertainment, and education expenses. He also had
expenses for dues to his professional society, his license
fees, and for job-related education. The expenses he must
include on Form 2106 are:
a. the travel and local transportation expenses
b. the travel, local transportation and entertainment
expenses
c. the travel and education expenses
d. all of the work-related expenses
4. In 2001, Heather paid $2,000 for a painting. In 2008, she
was offered $3,500 for it. The painting was damaged by
vandals before she could sell it. The damaged painting was
worth $1,400. She had no insurance. The amount of
Heather’s casualty loss on line 10 of her Form 4684 is:
a. $3,500
b. $2,000
c. $2,100
d. $1,500
103
Other Itemized Deductions
CLASSWORK 2: Multiple Choice.
5. Heather, from the above example, had an AGI of $15,000 in
2008. The amount of the loss she can claim on line 20 of
Schedule A is:
a. $400
b. $1,900
c. $500
d. $2,000
6. A temporary assignment is a job:
a. that is away from the taxpayer’s family
b. that is out of the taxpayer’s hometown
c. that is only for the taxpayer’s regular employer
d. that is away from your main place of work and is
expected to last (and in fact does last) for one year or
less
104
Other Itemized Deductions
CLASSWORK 2: Multiple Choice.
7. Which of the following is used to determine a taxpayer’s
main place of business or work when work is regularly
performed in two or more areas?
a. total time spent working in each area
b. degree of business activity in each area
c. relative amount of income from each area
d. all of the above
8. Qualified deductible employee education expenses include:
a. refresher courses for a taxpayer coming out of
retirement
b. courses to improve present job skills
c. required courses to meet minimum education
requirements
d. courses that qualify the taxpayer for a new occupation
e. all of the above
105
Other Itemized Deductions
CLASSWORK 2: Multiple Choice.
1. In 2008, Samantha and Sam had unreimbursed employee
expenses of $3,400, paid tax preparation fees of $600 and
paid $200 for investment journals and a safe deposit box.
Their adjusted gross income for 2008 is $53,000. The
deduction they will claim on line 27 of Schedule A is: c.
$3,140 (($3,400 + $600 + $200) – (2% of $53,000)
2. You cannot use the standard mileage rate for the same
vehicle if: a. you used actual expenses for the vehicle in
the first year, AND d. you claimed a depreciation
deduction using MACRS depreciation in an earlier year
3. In 2008, Derrick had deductible travel, local transportation,
entertainment, and education expenses. He also had
expenses for dues to his professional society, his license
fees, and for job-related education. The expenses he must
include on Form 2106 are: d. all of the work-related
expenses
106
Other Itemized Deductions
CLASSWORK 2: Multiple Choice.
4. In 2001, Heather paid $2,000 for a painting. In 2008, she
was offered $3,500 for it. The painting was damaged by
vandals before she could sell it. The damaged painting was
worth $1,400. She had no insurance. The amount of
Heather’s casualty loss on line 10 of her Form 4684 is: b.
$2,000
5. Heather, from the above example, had an AGI of $15,000 in
2008. The amount of the loss she can claim on line 20 of
Schedule A is: a. $400
6. A temporary assignment is a job: d. that is away from your
main place of work and is expected to last (and in fact does
last) one year or less
107
Other Itemized Deductions
CLASSWORK 2: Multiple Choice.
7. Which of the following is used to determine a taxpayer’s
main place of business or work when work is regularly
performed in two or more areas? d. all of the above
8. Qualified deductible employee education expenses include:
b. courses to improve present job skills
108
Other Itemized Deductions
CLASSWORK 3: Determine which of the following expenses
are deductible and which are not deductible. Circle D for
deductible or N for nondeductible on Schedule A.
(1) Meals while working late
(2) Lodging and meals during an overnight business trip
(3) Depreciation on a home computer used to manage
investments
(4) The cost of a safe deposit box to store jewelry
(5) Entertaining a client at a nightclub after a negotiation
session
(6) Parking fees when using the standard mileage rate
(7) Classes required by an employer to keep a current job
(8) Buying and cleaning a nurse’s uniform
(9) Union dues
(10) Education to prepare for a new career
109
Other Itemized Deductions
CLASSWORK 3: Determine which of the following expenses
are deductible and which are not deductible. Circle D for
deductible or N for nondeductible on Schedule A.
(11) Travel expenses for a non-employee spouse
(12) Transportation from a regular workplace to a second
office
(13) Legal expenses to collect taxable alimony
(14) Work tools that wear out within one year from the date
of purchase and safety equipment
(15) A $25 gift basket to a customer’s spouse
(16) Business cards
(17) Financial books or magazines
(18) Investment related seminars
110
Other Itemized Deductions
CLASSWORK 3: Determine which of the following expenses
are deductible and which are not deductible. Circle D for
deductible or N for nondeductible on Schedule A.
(1) Meals while working late N
(2) Lodging and meals during an overnight business trip D
(3) Depreciation on a home computer used to manage
investments D
(4) The cost of a safe deposit box to store jewelry N
(5) Entertaining a client at a nightclub after a negotiation
session D
(6) Parking fees when using the standard mileage rate D
(7) Classes required by an employer to keep a current job D
(8) Buying and cleaning a nurse’s uniform D
(9) Union dues D
(10) Education to prepare for a new career N
111
Other Itemized Deductions
CLASSWORK 3: Determine which of the following expenses
are deductible and which are not deductible. Circle D for
deductible or N for nondeductible on Schedule A.
(11) Travel expenses for a non-employee spouse N
(12) Transportation from a regular workplace to a second
office D
(13) Legal expenses to collect taxable alimony D
(14) Work tools that wear out within one year from the date
of purchase and safety equipment D
(15) A $25 gift basket to a customer’s spouse D
(16) Business cards D
(17) Financial books or magazines D
(18) Investment related seminars N
112
Questions & Answers
113