Taxation Law Assignment: Deductions, Expenses and Tax Implications

This taxation law assignment analyzes various scenarios related to tax deductions according to the IRS regulations. The assignment addresses the deductibility of commuting expenses, meals, educational expenses (photocopying, stationery, and laptop depreciation), and child-care costs for an individual named Min. It also examines the tax implications for Peter who has a home office, an electronic manufacturer's legal expenses, and a construction company's borrowing expenses. Additionally, the assignment considers the deductibility of payments made to a tax firm (Kwik Tax) by Donna, and the interest payments by Pamela. The solution provides detailed explanations and calculations based on IRS guidelines, clarifying what expenses qualify for tax deductions and what do not.

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Taxation law
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Question 1
(a) According to the (IRS) Internal Revenue Service, commuting expenses for purpose of
getting to and from work are not deductible. However, if one decides to use his/her
vehicle for work-related activities, one can deduct actual expenses under the standard
mileage deduction. Moreover, transport expenses to and from school are also not
qualified for the deduction (IRS, 2018). Therefore, Min’s transport cost is not
qualified for deductions.
(b) Under the IRS laws, cost of meals eaten between classes is not deductible under the
“similar personal, living or family expenses.”
(c) The IRS provides that expenses incurred for accessing books, equipment, and supplies
during the course of study are qualified for tax deductions (IRS, 2018). This is to
mean that photocopying ($450), purchase of stationery ($350) and depreciation on a
laptop computer is deductible. Therefore, Min is entitled to a tax deduction of $1,175
(d) The child-care cost that Min had to incur to facilitate her Job and education is also not
deductible as personal, living or family expenses are not deductible.
Question 2
(a) In line with the taxation law, Peter does qualify for deductions (interest on the
mortgage, rates, electricity, and insurance) for setting up a home office that is used
regularly and exclusively for work (IRS, 2018). However, this only qualifies if the
employer fails to reimburse Peter.
(b) The electronic manufacturer legal expenses incurred qualify for deductions. Thus,
according to the IRS that provides that legal expenses incurred for professional

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services or legal services for the business are deductible, especially if they are related
to income producing investment activities (IRS, 2018).
(c) The construction company does qualify for deductions on the borrowing expenses.
This is in accordance with the law that provides the following costs, which are
classified under borrowing cost, should be tax deductible(IRS, 2018). Such costs
include,
 General cost of preparing and filing a mortgage documents
 Fees for valuation required for loan approval
 Mortgage broker fees
 Lenders mortgage insurance
 Stamp duty charged on the mortgage
 Loan establishment fees and
 Title search fees charged by the lender
In this case, the tax deduction to be claimed by the company is calculated as
follows
The amount incurred $550
Repayable number of years, 4 years
Tax deductions 30th June 2018
550/4 = $137.50
1st January to 30th June = 182 days
$ 137.50/366* 182 days = $68.4

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The amount to be claimed on 30 June 2018 will be $ 68.4 while for the next
three years will be $ 137.5
(d) The payment made by Donna to the registered firm, Kwik tax is partially tax
deductible according to the law. Though all of these services can be classified under
the legal and professional fees, not all of them are tax-deductible (IRS, 2018).
However, the deductions will be determined by the adjusted gross income. If the total
miscellaneous expense exceeds 2% of the adjusted gross income, the deductions will
be limited. If not, Donna is entitled to deductions, amounting to $1,175.
In an event that she decided to use her friend to prepare the tax return at a fee of $
150, then she would not be able to claim deductions since her friend is not a registered
entity.
(e) In accordance with the IRS, interest is tax deductible only when it is related to
mortgage, business loan or investment loan (IRS, 2018). Otherwise, interest on credit
cards and other personal loan are not tax deductible. Therefore, depending on what
Pamela indicated the loan was meant for, deductions will vary. If it is a personal loan,
then there are no deductions. On the other hand, business loans will be deducted as
follows
$ 50,000* 7.5percentage = $ 3,750 will be the deductible amount.

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References
IRS. (2018). Credits & Deductions for Individuals | Internal Revenue Service.
Retrieved from https://www.irs.gov/credits-deductions-for-individuals
IRS. (2018). Qualified Ed Expenses | Internal Revenue Service. Retrieved from
https://www.irs.gov/credits-deductions/individuals/qualified-ed-expenses