Taxing Definitions

Definition — Fines and Penalties

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Internal revenue code section 162 starts out with a general rule of allowing a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.

But when the business expenses are fines and penalties paid to a government for the violation of any law, the general rule no longer applies. Those expenses are not deductible (section 162(f)).

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Taxing Definitions

Definition — Enhanced Deduction

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Donations of inventory are generally deductible at the lesser of fair market value or your basis in the inventory.

However, if your business is organized as a C corporation, you can claim an enhanced deduction for contributions of inventory or other property when the donations serve a specific purpose, such as helping the ill, the needy, and infants.

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Taxing Definitions

Definition — Capital or Ordinary?

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For tax purposes, the answer to the “capital or ordinary” question seems simple enough for income. Ordinary income includes any gain from the sale or exchange of property that is not a capital asset. Capital gain results from gain on the sale or exchange of a capital asset.

Simple can still be puzzling. The dilemma, as always, lies in the details; the solution in putting the pieces together.

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Taxing Definitions

Definition — Home Away From Home

In a recently released report, the Treasury Inspector General for Tax Administration determined that some IRS executives incorrectly classified reimbursable taxable travel expenses as nontaxable. The rules that tripped up the IRS employees involve the difference between the definition of long-term travel away from home, which is taxable, and temporary travel away from home, which is not taxable. For purposes…

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Taxing Definitions

Definition — Employee Business Expenses

When you pay expenses for the benefit of your employer, such as vehicle expenses, work-related travel, and job-related legal fees, and you receive no reimbursement, you can generally claim an itemized deduction on your federal income tax return. The deduction is typically limited by your adjusted gross income. Do you know In addition, other rules still apply. For example, deductions…

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