Deductions and Losses: Certain Itemized Deductions

The general rules require that personal expenses are not subjected to the taxation. This is however in contrary to the amendment by the Congress that needs personal expenses such as medical expenses, mortgage interest, certain taxes, investment interest and charitable contributions to be taxed as itemized deductions. Medical costs are considered as itemized deductions when the costs are not reimbursed. Some of the medical costs that are treated as itemized deductions include capital expenditures for medical purposes, medical costs incurred for dependents and spouse, transportation, meal, and medical expenses for medical treatment, the amount paid for medical insurance premiums, year of deduction as well as the reimbursement status.

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There are also health saving accounts that an individual can use together with other medical deductions to reduce the medical coverage cost. It I essential to note that there are high deductible plans which are cheaply considered to the low deductible plans. The employees should be able to identify which program they want to operate on before subjecting his or her expenses to the taxation and deductions.

The tax law has provisions which prevent double taxation. The local and state income tax deductions are essential since they are put in place to ensure that taxpayers are not subjected to double taxation. Deductions on real estate tax encourage people to own homes. Deductions also promote equity which is one of the primary objectives of the tax policies. Taxes are different from fees in the sense that expenses are not deductible, unlike charges that are subject to deductions. There is also property tax imposed on the real property. Property tax is not imposed directly on the property but on the person to who bears the taxation burden.

Tax law allows the deductions on the interest even though it is one of the most controversial provisions in the tax law. The law is not clear on the amount of deductible interest. The Supreme Court defined interest as the compensation for the use of money hence recommended that their deductions on interest are justified. The areas in which deductions on interest is allowed include Interest on qualified students loans, qualified residence interest, interest paid for services, property penalty and interest paid to related parties. Additionally, investment interest and tax-exempt securities subject to the deduction.

However, there are restrictions on deductibility and time considerations. The deduction should only happen when there is the obligation on the taxpayer. Time for deductions should also be considered whether it is under cash method or accrual method. There is the requirement to come up with proper plans that will guide the way deductions are made. Tax planning under deductions requires that there should be the practical use of itemized deductions and medication deductions. The time for paying the deductible taxes should be well explained to all taxpayers to avoid usages like late payments that can result in tax and deductions deficiencies. The deductions on interest should be protected to ensure that they are correctly put to use. All the charitable contributions should also be subjected to deductions, and all the holders must be qualified philanthropic individuals and organizations. Not all people feel okay when they are subjected to taxation and deductions. The government can only provide for the public services such as medical and education facilities by collecting tax and deductions from the public. The tax authority should also be accountable and transparent on the tax collection process to avoid cases like embezzlement of the collected money. It can only happen when there are proper rules and regulations in place regarding the taxation and deduction processes.

Property Transactions: Determination of Gains or Loss and Basis Consideration

The tax collection agency should determine whether; there is gain or loss, the gain or loss is recognized, is gain or loss recognized capital or ordinary and the ground on which the replacement of the property acquired happened. Whenever a property is purchased, sold, exchanged or even disposed of, there must be gain or loss to be incurred. However, these gains or losses usually are challenging to recognize hence making it difficult to realize them. It is only through a change of ownership of property that one will be able to identify that there is gain or loss that has been incurred.

Gains and losses can be realized through, sale or disposition of property which involves the virtual distribution of products and is stated in the tax law. Examples of dispersal are condemnations, bond retirement, casualties trade-ins. The realized gains and losses are computed by subtracting properties adjusted basis on the disposition date from the amount realized from the sale of the property. The amount recognized is the measure of the economic value received for property given up. Adjusted basis, on the other hand, is the original basis adjusted of a property to the date of disposition. Capital additions include the betterments made and capital improvements to the property by the taxpayer. Capital recoveries reduce the adjusted basis of property and include things like depreciation and cost recovery, casualties and thefts, certain corporate distributions, amortizable bond premium, and easements.

There are additional complexities that tend to complicate the determination of adjusted basis. The first complexity is the difficulty in determining the way the property was acquired, that is, whether it was obtained through purchase, gift or inheritance, taxable exchange and nontaxable exchange. The second complexity faced is whether the property is subject to depreciation, amortization, cost recovery or depletion. In case the property is subject to all those scenarios then the adjustment must be made to the basics during the period that the property was in possession with the taxpayer. There is also complexity in calculating the positive and negative adjustments since the same modifications are also used in calculating the amount realized.

When the gain is included in the taxpayer's income, such benefit is called realized a profit. Realized loss, on the other hand, refers to the amount of apprehended damage that can be deducted for tax purposes. There are other cases where gains and losses go unnoticed, and in this case, they are referred to us non-recognizable gains or losses. When these gains or losses are not recognized, there will be a deficiency in the taxation. Some considerations are put in place to ensure that all gains and losses are recognized. The first consideration is the determination of cost basis which involves identification of the problems and allocation of difficulties. The second consideration is gift basis which entails determining the date that the gift was given out, the base of the property to the donor, the amount of tax paid from such fair market value of the property and gifts. The taxation policies must also take into account the features that are inherited to ensure that the requirements of the basic rules are fulfilled.

The taxing plan in this scenario includes documentation considerations and cost identifications, selection of property for making gifts, selection of property for inheritance and review of disallowed losses. The tax agency should be very keen when dealing with taxation of transactions on properties since many people prefer to use black markets where they can avoid being taxed.