P3-36A Journalizing and posting adjustments to the four-column accounts and preparing an adjusted trial balance The unadjusted trial balance of Newport Inn Company at December 31, 2016, and the data….
“Deductions and Losses”
What is the distinction between deductions for AGI and deductions from AGI and why should this be important for individuals?
As you review deductions from AGI and for AGI, how should bribes and kickbacks be treated for tax purposes? Are they a deduction and are they allowed? As you may recall, Al Capone’s conviction caused mobsters and other illegal gangsters to rethink their method of keeping detailed records. Why did this rethink occur? How different was this situation of bribes and kickbacks to how multimillion-dollar corporations do business now?
Can you make response each posted below #1 to 3
1. From: Chinh Pham posted May 26, 2018 7:46 PM
Hello Professor and class,
Deductions for AGI, which is called above-the-line, legally allow the taxpayer deducted directly from his/her gross income to lower the net income, which may result in the lower taxable income and any other qualify tax credit, while deductions from AGI, which is called below-the-line, allow the taxpayer deducted some allowable itemizes.
According to Code 1.162-18 (*), no deduction shall be allowed for any amount paid or incurred to or by an official or employee of any government, this type of payments constitutes an illegal bribe or kickback.
Legal Information Institute, Cornell Law School (2016, August 11). Illegal bribes and kickbacks. Retrieved from https://www.law.cornell.edu/cfr/text/26/1.162-18
2. From: Daniel Gervais posted May 26, 2018 7:26 PM
Adjustments for AGI take place between gross income and AGI. The most common deduction for AGI are contributions to IRA’s or 401K’s. Adjustments from AGI take place after your AGI has been calculated. The distinction is important because your AGI is the income number used to determine if you qualify for some deductions. Medical expenses which exceed 7.5% of your income can be deducted, making your AGI a key figure.
Regarding the Capone example, business expenses are adjustments for AGI. Bribes are considered a business expense, but since they are illegal, one cannot deduct their bribes as a business expense. When is comes to multimillion dollar corporations, many of which have an interest to influence lawmakers, like bribes, contributions to PAC’s are not deductible. In a funny way, this doesn’t seem that much different, does it?
3. From: Rebecca Willis posted May 26, 2018 11:28 AM
Deductions for AGI can be claimed even if taxpayer does not itemize. It is important in determining the amount of certain itemized deductions for individuals so they do not over pay or miss an allowable deduction. Deductions from AGI, must exceed the standard deduction to provide any tax benefit. Also called “below the line” or itemized deductions.
Kickbacks and bribes are different, bribes are when a person in power uses it as leverage against another, kickbacks are perks. Kickbacks are totally legal where bribes are not.
I received a $100 kickback when I gave my car salesman a new customer by referring my friend to him. They called it a bird-dog payment. The IRS does not consider bribes a deduction, however kickbacks are.
Al Capone was able to be convicted because he documented and kept records of things that could be used against him, much like Enron in my opinion. Enron kept those records, had a policy for shredding documents and did not follow it. So, in short after Enron, I believe that large corporations are making sure that if these illegal activities are being documented that those documents are shredded.