Category Archives: IRS Deductions

Deducting Student Loan Interest Code Section 221 – Paul Gaulkin CPA

paper saying student loans in red

Interest payments made on student loans are deductible for adjusted gross income or “above the line”. This means that a taxpayer can deduct the interest whether or not he or she has chosen to itemize deductions for the tax year. For 2012, eligible taxpayers may deduct up to $2,500 of interest expense on a qualified education loan under Code Section 221. Deduction Phase Out The deduction begins to phase out for single taxpayer with adjusted gross income between $60,000 and … Read more

Deduction for Losses Code Section 165 – Paul Gaulkin CPA

chart showing a large loss

Code Section 165 basically establishes the general outline that governs the deductibility of losses. This statute permits a deduction for the following categories of losses as long as they the taxpayer is no reimbursed through insurance or otherwise: 1. Losses incurred in a trade or business (deductible without limitation) 2. Losses incurred in transactions entered into for profit, though not connected with a trade or business (deductible as capital losses); and 3. Losses of property not connected with a trade … Read more

Medical Insurance Premium Deduction – Paul Gaulkin CPA

Doctor's Office Team

A medical expense deduction is allowed for premiums paid for medical care insurance, subject to a 7.5 percent limitation. If amounts are payable under an insurance contract for services that are not related to medical care, no amount paid for the insurance is deductible unless the medical care charges are stated separately in the contract or furnished in a separate statement. Amount of Deduction Long term health care insurance premiums are deductible, for 2012, the maximum deduction for prepaid long … Read more

Alcohol Fuel Credit Definition & Instructions – Paul Gaulkin CPA

picture of fuel pump

To help foster the production of gasoline, an income tax credit for alcohol and alcohol blended rules applies to fuel sales and uses. There is basically a 60 cent per gallon credit for alcohol of at least 190 proof and 40 cent per gallon credit for alcohol of at least 150 but less than 190 proof for persons producing alcohol rules or using them in a trade or business. Alcohol Fuel Credit Reduction The amount of the allowable tax credit … Read more

State Income Tax Deduction – Paul Gaulkin CPA

map of USA

State income taxes, including franchise taxes measured by net income, are deductible as itemized deductions by individuals. State and local income taxes assessed against interest income that is exempt from federal income tax is also deductible. However, state and local income taxes on other exempt income are not deductible. A taxpayer is able to deduct state and local income taxes that have been withheld from their salary. They can also deduct tax payments made on prior year income in the … Read more

Deductible Transportation Expenses for AGI – Paul Gaulkin CPA

Car on top of pile of coins

Transportation expenses are defined for tax purposes as the actual cost of transporting an individual from one location to another when the individual is not travelling away from home overnight for business. Normally, transportation expenses will include airline fares, taxi fares, automobile expenses, parking fees, tolls, and other expenses of this nature. Self Employed Transportation Transportation expenses of a self employed taxpayer are deductible for adjusted gross income as a trade or business expense. Unreimbursed employee transportation expenses are deductible … Read more

Alternative MACRS System – Paul Gaulkin CPA

diamond jewelry

MACRS deductions are reduced for certain property by requiring that an alternative MACRS method, based on the Asset Depreciation Range System class lives, be used for: 1. Tangible property used predominately outside the United States 2. Tax exempt property 3. Tax exempt bond financed property 4. Property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions 5. Property for which an alternative MACRS election has been made Mixed property which … Read more

Business Bad Debt Deduction – Paul Gaulkin CPA

debt written on chalk board

The deductibility of a bad debt solely depends on the character of the underlying debt. In the event the bad debt is business related, it is fully deductible by the taxpayer from gross income as an ordinary business expense in the year the debt becomes either partially or completely worthless. If it is partially worthless, only the part of the debt that is not expected to be collected can be deducted. Non Business Bad Debt In the event the debt … Read more

Manufacturing Deduction – Paul Gaulkin CPA

pushing box down warehouse

In 2004, the American Jobs Creation Act was passed which created a new deduction for manufacturers. This deduction effectively reduces the corporate income tax rate for domestic manufacturing three percentage points from a maximum rate of 35 percent down to 32 percent. Who Qualifies Domestic manufacturers must be explained in more detail because many more manufacturers beside traditional manufacturers qualify for the deduction. These manufacturers include domestic producers in the areas of construction, engineering, energy production, computer software, files and … Read more

Student Loan Interest Deduction – Paul Gaulkin CPA

Student looking at piggy bank

If you have outstanding student loans, you may benefit greatly by deducting the interest that is paid on them. Interest payments on student loans are deductible as an above the line deduction. This means that a taxpayer can deduct the interest whether or not they itemize deductions. In 2012, a person who is eligible for the student loan interest deduction may deduct up to $2,500 of interest expense on a qualified education loan. If you are unsure if your loan … Read more