Question

You are talking with your uncle about taxation. He says that tax deductions are only for the rich guys.

A. Explain to your uncle what types of expenditures can be itemized deductions. (10 points)

B. Your uncle says that he thinks that personal expenditures on automobiles should be deductible. Explain to him the efficiency and fairness issues connected to tax deductibility of spending on automobiles. (10 points)

Answer 1

Solution A

Itemized deductions are not just for rich it is equivalence for all citizens. Follwing desuctions on expenses are allowed. :

• Medical expenses
• Mortgages interest expenses
• Charitable contributions
• Insurance
• Social security schemes
• Gambling losses
• Casualty and theft

Solution B

Personal expenditure are leisure expenses and discretionary and is not in ambit of common people or entire nation as whole. Specifically buying car is not necessity as against buying good and hence it is not deductible. However if it is fairly used for effective business purpose than upto 100% tax deduction can be claimed for business uses only as per Tax Cut Job Act 2017.