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In: Economics

Taxpayers normally choose to itemize deductions when itemized deductions exceed the standard deduction. Itemized deductions carry...

Taxpayers normally choose to itemize deductions when itemized deductions exceed the standard deduction.

Itemized deductions carry a very strong political/social message. Mortgage interest is deductible, but not consumer interest. The tax code is encouraging debt for home ownership, but not for credit card debt.

Another area I get into debate with clients is on lunch expenses. A tradesperson who buys lunch every day is not in travel status, in my opinion. It is a personal expense, and they could bring lunch if they wanted to. However, if a client is traveling to another city, then they are in travel status and lunch is a meal deduction (subject to the 50% limitation, of course.) What do you think?

Another posted article deals with whether or personal appearance alterations can be claimed as a deduction. What qualifies, what doesn't?

The third article is regarding a nurse who deducted the expenses of getting an MBA on Schedule A. She argued and won, that the education did NOT train or qualify her for a new job, but rather to add skills necessary for her current profession.

Regarding the articles, how do you feel about these situations? How does the government encourage behavior with itemized deductions?

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Expert Solution

Itemize tax deductions are mainly used to decrease taxable income. Mortgage payments entail a large amount and tax savings on account of it are just a miniscule part of it. Consumer interest is a small amount and can be used for any purpose, in case of mortgage payments, the government is aware that it is only being used for this specific purpose.

It is true that lunch is a personal expense, however if a person is travelling, than the person should charge the company as the rates might differ where he is travelling for work, he won't spend an excess amount on food as the company has made him travel, he doesn't have an option to carry food as food is perishable, so it is quite fair that he should take money from the company for lunch.

Personal appearance is subject to what the company feels a person should do or not, if he or she is valuable to the company and the company needs that person to be presentable, than it is fair that they should charge the company.

The nurse was quite right if it is certain that the education did not train her for any other job, and as the knowledge which she gained couldn't be used anywhere else, than it is justifiable that she charged the company.

Rahul Sunny answered 1 year ago
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