Thelaw establishes deductions. I have learned that the taxpayer has theburden of proof to keep adequate tax deduction records for threeyears. There are two types of deductions- those above the line of theaggregate gross income (deducted to arrive at the AGI) and thosebelow (deducted from the AGI). Personal itemized deductions arebeneficial when they exceed the standard deduction. Business itemizeddeductions are either required to be customary, casual, ordinary orreasonable to qualify for deductions (Hufbauer, & Grieco, 2005).
Itis possible to create losses by spending more than the revenueshowever, for the extra expenditures to be considered, they shouldpass the IRS hobby test. Hobby losses are only deductible if theygenerate profit. Casualty losses incurred by fire, storm, shipwreckand theft are deductible. Expenses incurred on such activities asfines, illegal bribes, penalties or kickbacks are against the publicpolicy and are not deductible. Political contributions such aslobbying for political aspirants are not deductible, however otherssuch as lobbying to influence and monitor legislation are deductible.Research and development fees are deductible if they associate withthe business. However, if the research is for a different line ofbusiness, the expenses are only deductible upon the success of thenew line of business (Hufbauer, & Grieco, 2005).
Theaudio provides a resourceful analysis on how to advise people whocontemplate engaging in a hobby like activity as a tax savingstrategy. I have learned the benefits of a rental property as asecond home as opposed to a vacation home. In a vacation home, onecannot deduct maintenance items while the rental expense is deductedfor AGI. Personal expenses are not deductible by the IRS. Greatattention is paid to classify the types of expenses deducted for AGIto determine whether they are deductible (Hufbauer, & Grieco,2005).
Hufbauer,G., & Grieco, P. (2005). Reformingthe US Corporate Tax.Washington, D.C.: Institute for International Economics.