Sam is a sole proprietor who owns, leases, and manages several apartment complexes and office buildings. During the current year, Sam incurs the following expenses:

1. Which of these expenditures are deductible?
2. Are they for or from AGI deductions?

a. $200 in attorney's fees for title searches on a new property Sam has acquired.
b. $450 in legal fees in an action brought to collect back rents.
c. $500 to his CPA for the preparation of his federal income tax return. $400 is for the preparation of Schedule C (Profit or Loss from Business)
d. $300 in attorney's fees for drafting a will.
e. $250 in attorney's fees in an unsuccessful attempt to prevent the city from rezoning the area of the city where several of his office buildings are located.

Question

24-03-2020
Business

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Sam is a sole proprietor who owns, leases, and manages several apartment complexes and office buildings. During the current year, Sam incurs the following expenses:

1. Which of these expenditures are deductible?
2. Are they for or from AGI deductions?

a. $200 in attorney's fees for title searches on a new property Sam has acquired.
b. $450 in legal fees in an action brought to collect back rents.
c. $500 to his CPA for the preparation of his federal income tax return. $400 is for the preparation of Schedule C (Profit or Loss from Business)
d. $300 in attorney's fees for drafting a will.
e. $250 in attorney's fees in an unsuccessful attempt to prevent the city from rezoning the area of the city where several of his office buildings are located.

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Answer: please check Explanation for answer.

Explanation:

a.)$200 in attorney's fees for title searches on a new property Sam has acquired. -----Not deductible and neither for AGI or from AGI

b. $450 in legal fees in an action brought to collect back rents.----- Yes, the expenditure is deductible and

For AGI.

c.$500 to his CPA for the preparation of his federal income tax return. $400 is for the preparation of Schedule C (Profit or Loss from Business). Yes, Expenditure is deductible and

$400 for AGI and $100 form AGI

d. $300 in attorney's fees for drafting a will---- Not deductible and none for AGI or from AGI

e. $250 in attorney's fees in an unsuccessful attempt to prevent the city from rezoning the area of the city where several of his office buildings are located----Yes, deductible for expenditure and For AGI.

A deductible expense is one that can subtract from an individual's taxable gross income which reduces tax liability eg buisness losses while A non-deductible expense, on the other hand, does not have an impact on tax bill. Eg- personal bills.

To arrive at adjusted gross income, AGI, Gross income is usually reduced by some items like Expenses of trade mostly rental activities, Health savings account deductions,Domestic production activities deduction, moving expenses etc.