Answer # 2 What is deductible

Checklist for Deductions

Accident and health plans	Interest on tax deficiencies
Accounting fees	Job hunting expenses
Advertising expenses	Legal expenses and fees
Appraisal fees	Legislators
Attorney’s fees	License fees
Automobile expenses	Lobbying expense
Bad debts, 98FED¶10,550.01	Losses
Business conventions	Machinery
Charitable contributions	Meals
Commissions	Medical insurance premiums
Computer software	Moving expenses
Dues	Office in home (limited)
Education expenses (employee)	Outside salesperson
Employee’s expenses	Permanent improvements
Employment taxes	Political contributions
Entertainment expenses (business, nonemployee)	Professional associations, dues
Farmers, expenses for	Professional books and journals
Federal National Mortgage Association	Promotional activities
Financial counseling fees	Retirement plans, contributions to
Fines and penalties	Salaries
Firefighter	Salespersons’ expenses
Foreign taxes (unless taken as credit)	Social security taxes
Forfeitures	Stamp tax
Fringe benefits	Tax returns, cost of preparation
Gifts to employees	Theft loss
Golden parachutes	Transfer taxes
Golf course	Travel expenses (employees)
Impairment-related work expenses	Uncollectible notes (see Bad debts)
Insurance expenses	Union payments
Interest forfeiture	Waiters, waitresses

The following symbols are used:

D/GI = Deductible from gross income

D/AGI = Deductible from adjusted gross income

D/Am = Deductible over a period of time

ND = Nondeductible

The Internal Revenue Code permits a number of wide-ranging deductions that are taken into account in arriving at taxable income. However, the Code contains a number of rules and restrictions concerning the expenses that qualify as deductions and the taxpayers who may claim them. Deductions from gross income (D/GI), available to all qualifying taxpayers, must be distinguished from deductions from adjusted gross income (D/AGI), available only to those taxpayers who itemize. Certain miscellaneous itemized deductions, including unreimbursed employee business expenses and investment expenses, are deductible by an individual only if the aggregate amount of the deductions exceeds two percent of adjusted gross income. In addition, deductions that can be taken currently must be distinguished from those that can be taken over a number of years through depreciation or amortization (D/Am).

The chart below lists a number of expenses that a taxpayer might incur. The chart indicates for each expense a symbol(s) representing the availability of a deduction, its timing, and whether it is deductible from gross income or adjusted gross income.

The following symbols are used:

D/GI = Deductible from gross income

D/AGI = Deductible from adjusted gross income

D/Am = Deductible over a period of time

ND = Nondeductible

Abandonment of business real property .....D/GI

Accident and health plans

employer contributions .....D/GI

Accounting fees

capital transactions .....D/Am
connected with trade or business .....D/GI
investors ......D/AGI
organization of business .....D/Am
reorganization of business .....ND
Accounting system, installation .....D/GI
Administrative expenses of estate .....D/AGI
Admissions to political dinners, programs, inaugural balls, etc. .....ND

Advertising expenses

business cards .....D/GI
catalogs .....D/GI
long term .....D/Am
generally .....D/GI
home demonstrations .....D/GI
political convention programs and other political publications .....ND
prizes and contests .....D/GI
promotional activities .....D/GI
Airline pilot, special clothing .....D/AGI
Alcohol fuels credit, unused .....D/Am
Alimony payments .....D/GI
Amortization of premium on taxable bonds (optional) .....D/AGI

Appraisal fees

acquisition of capital asset .....ND
connection with trade or business .....D/AGI
Architect’s fees (capital expenditure) .....D/Am
Attorney’s and accountant’s fees in contesting tax claims (nonbusiness) .....D/AGI

Attorney’s fees

accounting suit by former partner, defense of .....D/GI
acquisition of corporate control .....ND
breach of promise suit (personal) .....ND
business debts, collection of .....D/GI
condemnation proceeding, defense of .....D/Am
disbarment proceedings .....D/GI
divorce,
obtaining alimony .....D/GI
proceedings .....ND
property settlement .....ND
personal affairs .....ND
slander prosecution (personal) .....ND
title clearance
land .....ND
stock .....ND
will preparation .....ND

Automobile expenses

business use by employee
unreimbursed .....D/AGI
business use by self-employed person
chauffeur’s salary .....D/GI
cost of car .....D/GI, D/Am
garage rentals ......D/GI
gas .....D/GI
insurance .....D/GI
license fees .....D/GI
loss on sale .....D/GI
oil and lubrication .....D/GI
parking .....D/GI
repairs .....D/GI
tires .....D/GI
washing .....D/GI
nonbusiness casualty loss .....D/AGI
pleasure use .....ND

Bad debts, 98FED¶10,550.01

business .....D/GI
nonbusiness .….D/GI
Bar examination fees .....ND
Baseball player’s uniforms .....D/AGI
Baseball team equipment for business publicity .....D/GI
Black lung benefits trust, employer contributions .....D/GI
Bookmakers, business expenses .....D/GI
Building replacements (capital expenditure) .....D/Am
Burglar alarm system, cost of installing (business capital expenditure) .....D/Am
Burial expenses .....ND
Business bad debts .....D/GI

Business conventions

cruise ship (limited) .....D/GI
foreign conventions .....D/GI
political conventions (must be related to trade or business) .....D/GI
travel expenses .....D/GI
Business expenses .....D/GI
Business meals .....50% D/GI
Business startup expenses .....D/GI, D/Am
Campaign contributions .....ND
Capital expenditures .....ND, D/Am
Capital loss individual (limited) .....D/GI
Car expenses (see "Automobile expenses")
Career counseling costs .....D/AGI
Caribbean convention expenses (business) .....D/GI
Carrying charges deductible as interest where installment sales contract states carrying charge separately ......D/AGI, 98FED¶9200.01
Casualty losses, personal, deduction limited to amount of each loss in excess of $100 and then only to the extent losses exceed 10% of adjusted gross income ......D/AGI, 98FED¶10,005.0093

Charitable contributions

corporations .....D/GI
computer technology equipment to schools .....D/GI
individuals .....D/AGI
appreciated stock ......D/AGI
where organization carries on lobbying activities ......ND
Child support payments (if fixed in divorce decree) .....ND
Circulation expenditures, newspapers, magazine periodicals .......D/GI
Clean fuel vehicle property .......D/GI
Clinical testing deduction if credit is elected .......ND
Club dues (business) .......ND
Coal royalty contracts, expenses related to, if there is no production, or no income, under contracts ............D/AGI, 98FED¶14,311.01
Commercial fishing boat crews, members’ protective clothing ........D/AGI

Commissions

paid as compensation ......D/GI
paid to obtain tenants .....D/Am
sale of real estate or securities
dealers ........D/GI
other taxpayers .......ND
Commissions on sale of real estate and securities, dealer only (other than taxpayers deduct from selling price) .......D/GI, 98FED¶8471.06, 98FED¶8471.09
Commuting expenses ......ND
Compensation, reasonable ......D/GI

Computer software

development costs ......D/GI, D/Am
leased software, business use ......D/GI
Contributions by employer to employer-financed accident and health plans for benefit of employees ......D/GI.98FED¶8702.015
Contributions by employer to state unemployment insurance and state disability funds .....D/GI
Contributions by members to a labor union ......D/AGI
Contributions paid (within certain limits) during year to charitable, etc., organizations .....D/AGI
Convention (political) programs, cost of advertising in ......ND
Conventions (see "Business conventions")
Cooperative housing corporation, taxes or interest paid to ......D/AGI
Copyright costs .......D/Am
Cost recovery, business property or property held for the production of income ......D/Am
Cruise ship business conventions (limited) ......D/GI
Custodian fees ......D/AGI
Defending title to property (capital expenditure) ......D/Am
Demolition of historic structure .....ND
Dependents ........D/AGI
Depletion .......D/GI
Depreciation, business property or property held for production of income ........D/Am
election to expense (limited) .......D/GI
Diaper service .......ND
Disbarment proceedings, attorneys’ fees and expenses in defending ......D/GI
Doctor’s staff privilege fees at hospital (capital expenditures) ......D/Am

Dues

chamber of commerce .....D/GI
charitable, religious, educational organizations ......D/AGI
clubs organized for business, pleasure, recreation, or any other social purpose ......ND
professional associations .....D/GI
union dues ......D/AGI

Education expenses (employee)

maintaining or improving required skills .....D/AGI
minimum requirements for job .....ND
new trade or business .....ND
Educational assistance plan payments ......D/GI
Efficiency engineers’ cost of business .....D/GI
Embezzlement loss .....D/GI

Employee’s expenses

entertaining customers
reimbursed expenses ......D/GI
unreimbursed expenses .....50% D/AGI
meals and lodging away from home
reimbursed ......D/GI
unreimbursed lodging .....D/AGI
unreimbursed meals .....50% D/AGI
move to a new work location ......D/GI
transportation expenses
unreimbursed ......D/AGI
Employees’ life insurance, paid by employer
employee beneficiary .......D/GI
employer beneficiary .......ND
Employees, payments for injuries, not compensated by insurance; disability benefits .......D/GI
Employment, fees for obtaining ......D/AGI

Employment taxes

employer’s payment under Federal Unemployment Tax Act
employer (but not deductible if paid on wages of domestics) ......D/GI
employer’s taxes under Federal Insurance Contributions Act
employer (deductible only as business expense) ......D/GI
employer’s taxes under Railroad Retirement Act
employer (deductible only as business expense) .......D/GI
Federal Unemployment Tax Act ......D/GI
Railroad Retirement Act .....D/GI
Railroad Unemployment Insurance Act .....D/GI
employer or employee representatives on whom imposed .....D/GI
Social Security Act .....D/GI

Entertainment expenses (business, nonemployee)

athletic club dues .....ND
facilities owned and used by the taxpayer .....ND
food
furnished to employees on premises .....50% D/GI
meals directly related to business .....50% D/GI
Provided for customers .....50% D/GI
Environmental cleanup costs .....D/GI
Environmental impact statement, preparation of ......D/GI
Estate tax .......ND
Excess deductions on termination of estate or trust ......D/AGI
Excise taxes on personal goods .......ND
Expenditures violating public policy ......ND

Farmers, expenses for

fertilizers, lime, etc. .....D/GI
soil and water conservation ......D/GI
Federal income tax .....ND

Federal National Mortgage Association

first buyers, excess of issue price over market value on date of issuance .....D/GI
sales to, by mortgage dealers .....D/Am
Fiduciaries’ fees ......D/AGI
Finance charges other than carrying charges or loan fees (limited) ......ND

Financial counseling fees

dealer ......D/GI
investor .....D/AGI
trader
business .......D/GI
nonbusiness .....D/AGI

Fines and penalties

child labor violations .......ND
Fair Labor Standards Act awards ......D/GI
federal income tax penalties .....ND
generally ......ND
NLRB awards .....D/GI
overweight or over-length trucks .....ND
violations of federal law .....ND
Walsh-Healey Act awards .....ND

Firefighter

meals and lodging on overnight duty at station .....ND, D/AGI
rubber coat, helmet, boots, etc. .....D/AGI
Foreign conventions (with limitations) ......D/GI

Foreign taxes (unless taken as credit)

by payor .......D/AGI

Forfeitures

business transactions
advance payments .....D/GI
lease deposits .....D/GI
purchase price .....D/GI
interest
premature withdrawal from time savings account ......D/GI

Fringe benefits

employee-related costs of employer .......D/GI
Funeral expenses ......ND
Furnishings and fixtures, business cost .......D/Am
Gambling losses (limited)....D/AGI
Gift tax ......ND
Gifts (business), but limited to $25 per donee per year .......D/GI

Gifts to employees

awards for length of service (limited) .....D/GI
gifts valued above $25 .......ND
gifts valued at $25 or less ......D/GI
Gifts to individuals .....ND

Golden parachutes

excess parachute payments ........ND
parachute payments .......D/GI

Golf course

maintenance and operating costs ......D/GI
original construction .......ND
Hobby losses .......ND
Home office (limited) ......D/GI
storage of product samples ......D/GI
House rent ......ND
Husband to wife, allowance paid as housewife’s salary ........ND
Illegal business, legitimate expenses .....D/GI, ND
Illegal drugs .......ND

Impairment-related work expenses

attendant care services at work......D/AGI
necessary expenses at work .....D/AGI
Import duties (unless as a business expense) ......ND
Improvements made by lessee, depreciation and amortization ......D/Am
Income tax (state) ....D/AGI
Income tax liability, cost of determining .....D/AGI
Income tax returns, cost of preparing (non-business) .....D/AGI
Individual retirement account, contributions (limited) ......D/GI
Infringement litigation in course of business ......D/GI
Inheritance tax .....ND
Injuries to employees, payments for, not compensated by insurance .......D/GI

Insurance expenses

business
casualty .....D/GI
malpractice ......D/GI
individual .....D/AGI
insured employees
employee or other beneficiary .....D/GI
employer beneficiary ......ND
key employees .....D/GI
personal residence ......ND
required for credit
premiums paid by creditor ......D/GI
premiums paid by debtor .....ND
Intangible assets (as defined in Code Sec. 197) .......D/Am
Interest and carrying charges related to a commodity straddle position in excess of income generated by straddle position ......ND, 98FED¶13,709.015
Interest (with exceptions and limitations, see below) .....D/AGI
education loans (limited) .....D/AGI
interest related to tax-exempt income .....ND
interest related to life insurance contracts (limited) ......D/AGI
personal obligations (limited) ......ND
points, purchase of residence .....D/AGI
prepaid ......D/Am
property held for production of rent or royalties ......D/GI
trade or business debts .......D/GI

Interest forfeiture

premature withdrawal from time savings account .......D/GI

Interest on tax deficiencies

corporation ......D/GI
individual-generally .....ND
related to trade or business .....D/GI
Investor’s expenses (except incurred in earning tax-exempt interest) ......D/AGI

Job hunting expenses

new trade or business ......ND
resume preparation costs .......D/AGI
same trade or business .......D/AGI
travel and transportation to new area .....D/AGI
Jockey’s riding apparel ......D/AGI
Labor union dues ......D/AGI
Laundry, dry cleaning, pressing charges, business travel .........D/AGI

Legal expenses and fees

business .....D/GI
investors .....D/AGI
production of income ......D/AGI
tax determination ......D/AGI

Legislators

congressional living expenses, away from home
expenses of moving to capital ......D/AGI
state
local transportation ......D/AGI
meals and lodging ......D/AGI
travel expenses .....D/AGI

License fees

treated as personal property tax .....D/AGI
Life insurance premiums, paid by employer,
employee or other beneficiary .....D/GI
employer beneficiary .....ND
Loan cost--stock reacquisition ......ND

Lobbying expense

appearances before legislative bodies .....ND
expenditures to influence voters ......ND
professional lobbyist’s expenses ......D/GI

gambling (trade or business) ......D/AGI
net operating loss ......D/GI
sale or exchange of property
business property ......D/GI
related parties ......ND
capital assets (business motive)
Theft or casualty
individual property .....D/AGI
rent- or royalty-generating property .......D/GI
worthless stock and securities ......D/GI
Lump-sum distribution--ordinary income portion ........D/GI

incidental repairs ......D/GI
Materials and supplies, business .......D/GI

employees’ business-reimbursed .....D/GI
employees’ business-unreimbursed ......50% D
employer’s cost of providing meals on premises ......D/GI
Medical, dental and hospital expenses (to the extent exceeding 7.5% of adjusted gross income) (for a detailed list of such expenses, see ¶470 ) .......D/AGI, 98FED¶12,543.01
Medical, dental and hospital expenses less than 7.5% of adjusted gross income .....ND

Medical insurance premiums

Medical savings accounts .....D/GI
Mine development expenditures ......D/GI
Mine exploration expenditures .....D/GI
Mortgage insurance premiums (FHA mortgage) paid by mortgagor--property not used in trade or business or held for production of income ......ND, 98FED¶9402.067

Moving expenses

employee, reimbursed
meals treated as compensation not subject to withholding
meals treated as compensation subject to withholding ......ND
other moving expenses.....D/GI
employee, unreimbursed
meals .......ND
other moving expenses ......D/GI
self employed
meals ......ND
other moving expenses ...... D/GI after 1993
Moving machinery to new plant ...... D/GI
Musician’s clothing, used exclusively in business .......D/AGI
National Labor Relations Board award to employees, payment by employer .....D/GI
Net operating loss deduction .......D/GI
New business, cost of starting up .....D/GI, D/Am
Nonbusiness bad debts (limited) .....D/GI
Nontrade or nonbusiness expenses incurred in preserving income-producing property .....D/AGI
Nurse’s uniform .....D/AGI

Office in home (limited)

employee ......D/AGI
principal place of business .....D/GI
Office supplies .....D/GI
Operating loss in prior or subsequent year.....D/GI
Organization expenses of corporation (amortizable over not less than 60 months) .......D/Am
Original construction of greens on a golf course ......ND

Outside salesperson

meals--see Meals, employees’ business
moving expenses--see Moving expenses
travel expenses ......D/AGI
Partners’ fixed or guaranteed payments for services or for use of capital (allowed as business deduction to partnership) .....D/GI, 98FED¶25,483.01
Partnership organization expenses, unless election to amortize .......ND
Passport fee, business trip .......D/GI
Passport fee (except for business purposes) .......ND
Penalties .......... generally ND
Environmental Protection Agency:
Clean Air Act violation .......ND
nonconformance penalty ......D/GI
penalty on early withdrawal of time deposit.......D/GI
Performing artists (limitation on gross income)
employee business expenses .....D/GI

Permanent improvements

business property ......D/Am
tenants .......D/Am
"Points" on home mortgage (if customarily required in geographic area in which indebtedness was incurred) ......D/AGI, 98FED¶9402.05, 98FED¶21,817.024
Police officer’s uniform and cost of cleaning ......D/AGI

Political contributions

corporations, businesses, etc. ......ND
individuals ......ND
Political publications, cost of advertising in .....ND (generally)
Postage costs, business ......D/GI
Premiums paid on a business insurance "professional overhead expense disability policy" ......D/GI
Prepaid interest or finance charges ......D/Am
Prizes and contests--see "Promotional activities"

Professional associations, dues

unreimbursed employee expense .....D/AGI

Professional books and journals

unreimbursed employee expense .....D/AGI

Promotional activities

coupons .....D/GI
prizes and contests .....D/GI
Protective clothing .....D/AGI
Raffle tickets, cost of .....ND
Railroad retirement tax paid by employers .....D/GI
Railway trainman’s uniform .....D/AGI
Reconditioning and health-restoring expenses of employees paid by employers .....D/GI
Reforestation costs .....D/GI, D/Am
Reimbursed expenses (otherwise deductible) .....D/GI
Removal of architectural and transportation barriers to the handicapped and elderly .....D/AGI
Rent, business property .....D/GI
Reorganization expenditures, unless election to amortize (capital expenditure) .....ND
Repairs to business property .....D/GI, D/Am
Repairs to personal residence ......ND
Research and experimental expenditures connected with a trade or business if amortized .....D/Am

Retirement plans, contributions to

employer .....D/GI
individuals (limited) .....D/GI
self-employed individuals .....D/GI
simplified employee pension contributions .....D/GI
Return, federal or state income tax, gift tax, etc., cost of having prepared (including investor) .....D/AGI
Safe deposit boxes, rental for protection of income producing property
investor .....D/AGI
trader
business use .....D/GI

bonuses .....D/GI
commissions .....D/GI
related parties .....D/GI

Salespersons’ expenses

reimbursed .....D/GI
unreimbursed ......D/AGI
automobile expenses......D/AGI
entertaining customers, reimbursed .....D/GI
entertaining customers, unreimbursed .....50% D/AGI
gifts to customers (up to $25) .....D/AGI
membership dues in business or social clubs ......ND
subscriptions to business, professional or trade publications, if for business reasons .....D/AGI
transportation expenses, unreimbursed .....D/AGI
travel expenses .....D/AGI
Self-employment tax (limited to 50%) .....D/GI
Servants, social security taxes paid for .....ND
Shareholder’s proxy fight expenses .....D/AGI

Social security taxes

employees .....ND
employers .....D/GI (only as business expense)
Soil and water conservation expenditures, farmers .....D/GI, D/Am

dealers/investors .....D/GI
trade or business .....D/GI
transfer of personal residence .....ND
Start-up expenditures, business .....D/GI, D/Am
State and local government employees expenses .....D/GI
Stock redemption costs .....ND
Subscriptions, professional journals (self-employed) .......D/GI
Supplemental unemployment compensation benefits, repayments by recipients ......D/GI
Surgeon’s uniform (employee) ......D/AGI
Tax penalty payments ......ND
Tax refresher course, lawyer’s ......D/GI

Tax returns, cost of preparation

business ......D/GI
individual ......D/AGI
Taxes (Deductible by Manufacturer, Producer, Importer or Corresponding Person, but Not by Consumer) .......98FED¶9502.01
automobiles ......D/AM
Telephone service (unless as a business expense) .....ND

business .....D/GI
nonbusiness ......D/AGI
Tires, truck used in business .....D/GI
Title costs (perfecting or defending title to property, including costs of defending condemnation proceedings) (capital expenditure) ......D/Am, 98FED¶8476.4682--98FED¶8476.471, 98FED¶12,523.35
Tools, unreimbursed cost, useful life of one year or less ......D/AGI
Trade association dues, unreimbursed employee expenses .....D/AGI
Trade or business expenses (securities dealers and traders) ......D/GI
Trademark and trade name expenditures .....D/GI, D/Am

Transfer taxes

business property .....ND
personal residences .....ND
real property .....ND

Travel expenses (employees)

commuting expenses .....ND
federal employees engaged in criminal investigations (special rule) .....D/AGI
reimbursed ......D/GI
unreimbursed .....D/AGI
baseball players (including meals and lodging) while away from "club town," also other business expenses at "club town" if tax "home" in a different city .....D/AGI
business v. pleasure trips .....D/AGI
clergymen, church conventions travel, meals and lodging away from home .....D/AGI
commercial fishing boat crew members, for travel, meals, and lodging away from home port .....D/AGI
congressmen, up to $3,000 of living expenses .....D/AGI
expenses of traveling from principal place to minor place of business .....D/AGI
government employees, expenses in excess of per diem allowances .....D/AGI
lawyers .....D/AGI
meals, reimbursed .....D/GI
meals, unreimbursed .....50% D/AGI
physician, medical conventions .....D/AGI
railroad employees’ meals and lodging while away from "home terminal" .....D/AGI
salespersons .....D/AGI
teachers, scientific meetings and conventions .....D/AGI
truck drivers’ (long line) meals and lodging while away from "home terminal" .....D/AGI
Truck tires with life less than a year .....D/GI
Truck use tax (unless as business expense) .....ND

Uncollectible notes (see Bad debts)

Uniform and special clothing costs
baseball uniforms .....D/AGI
clothing required for business .....D/AGI
employer-reimbursed costs .....D/GI
jockey’s riding apparel .....D/AGI
nurses’ uniforms .....D/AGI
protective clothing .....D/AGI
work shoes, metal tipped .....D/AGI

Union payments

dues .....D/AGI
fines .....D/AGI
Utilities, personal ......ND
Wages and salaries .....D/GI

Waiters, waitresses

special uniforms .....D/AGI
Work shoes, metal tipped for protection of worker .....D/AGI

Note to users: All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the facts of the particular situation.