Question

This semester, we learned that Congress designed the Code to include deductions that can be taken for losses that a taxpayer may experience. Two such deductions are (1) the bad debt deduction and (2) the deduction for casualty losses and theft. How does the IRS generally interpret deductions (i.e., broadly or narrowly)? How do we determine whether a taxpayer is entitled to each of these two deductions? What is the purpose of each of these two deductions? Are there any limits on the deduction at issue? Finally, what generally governs when a taxpayer may take each of these two deductions?

Answer 1

Answer :-

• An awful obligation conclusion is allowed if a business record of sale along these lines turns out to be mostly or totally useless, giving the salary emerging from the obligation recently was incorporated into pay.
• Accessible strategies are the particular charge-off strategy and the hold technique. Be that as it may, with the exception of certain money related foundations, TRA of 1986 canceled the utilization of the hold technique for 1987 and from that point.
• On the off chance that the hold technique is utilized, in part or absolutely useless records are charged to the save.
• A nonbusiness terrible obligation derivation is permitted as a momentary capital misfortune if the advance did not emerge regarding the loan boss' exchange or business exercises.
• Advances between related gatherings (relatives) for the most part are delegated non-business. § 166.casualty is characterized as "the total or incomplete pulverization of property coming about froman recognizable occasion of an abrupt, startling or strange nature" (e.g., floods, storms, fires, auto accidents).theft are dealt with like setback misfortunes yet the planning of acknowledgment is extraordinary.
• Misfortune is deducted on the time of revelation however in the event that recuperation is sensibly expected, no reasoning is allowed yet on the off chance that the recoup is not exactly adj premise, a finding is possible.
• Individuals may deduct a loss misfortune just if the misfortune is brought about in an exchange or business or in an exchange went into for benefit or emerges from flame, tempest, wreck, or other loss or from burglary.
• People more often than not deduct individual setback misfortunes as separated conclusions subject to a $100 nondeductible sum and to a yearly floor equivalent to 10 percent of balanced gross salary that applies after the $100 per loss floor has been connected.
• Unique tenets are accommodated the netting of certain setback additions and misfortunes.