When we calculate average and effective tax rates, do we consider implicit taxes?  What effect does this have on taxpayers’ perception of equity?

Jake is a retired jockey who takes monthly trips to Las Vegas to gamble on horse races.  Jake also trains race horses part time at his Louisville ranch.  So far this year, Jake has won almost $47,500 during his trips to Las Vegas while spending $27,250 on travel expenses and incurring $62,400 of gambling losses.  Jake also received $60,000 in revenue from his training activities and he incurred $72,000 of associated costs.  Explain how Jake’s gambling winnings and related costs will be treated for tax purposes.  Describe the factors that will influence how Jake’s ranch expenses are treated for tax purposes.

Explain why an employee should be concerned about whether his employer reimburses business expenses using an “accountable” plan?

How might the reimbursement of a portion of an employee expense influence the deductibility of the expense for the employee?

When is the cost of education deductible as an employee business expense?

Explain why the cost of commuting from home to work is not deductible as a business expense.

Describe the types of expenses that constitute miscellaneous itemized deductions and explain why these expenses rarely produce any tax benefits.

{Research}  This week Jim’s residence was heavily damaged by a storm system that spread destruction throughout the region.  While Jim’s property insurance covers some of the damage, there is a significant amount of uninsured loss.  The governor of Jim’s state has requested that the president declare the region a federal disaster area and provide federal disaster assistance.  Explain to Jim the income tax implications of such a declaration and any associated tax planning possibilities.

A casualty loss from the complete destruction of a personal asset is limited to the lesser of fair market value or the property’s adjusted basis.  Explain the rationale for this rule as opposed to just allowing a deduction for the basis of the asset.

Describe the type of event that qualifies as a casualty for tax purposes.

Describe the conditions in which a donation of property to a charity will result in a charitable contribution deduction of fair market value and when it will result in a deduction of the tax basis of the property.

{Research}  Cash donations to charity are subject to a number of very specific substantiation requirements.  Describe these requirements and how charitable gifts can be substantiated.  Describe the substantiation requirements for property donations.

Explain the argument that the deductions for charitable contributions and home mortgage interest represent indirect subsidies for these activities.