Video: Adjustments and Deductions to Arrive at Adjusted Gross Income and Taxable Income - Practice Questions

In this engaging lesson, Nick Palazzolo, CPA, delves into the intricacies of adjustments and deductions for determining adjusted gross income (AGI) using practical examples like Dr. Mary, a self-employed dentist. Nick demystifies which expenses are deductible for a business on Schedule C, such as work uniforms and seminar fees, while pointing out common pitfalls where candidates might misinterpret tax-deductible items. He also tackles the topic of non-business bad debts, illustrating the exact conditions under which candidates can deduct such losses from their taxable income. With a keen focus on the specific, real-life scenarios that bring clarity to complex tax concepts, Nick ensures a comprehensive understanding of what's essential for mastering these crucial topics.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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All right, all you wonderful candidates, time to run through some questions here dealing with adjustments and deductions to get to your adjusted gross income. First up, we've got Dr. Mary, who is a self-employed dentist. Good for you, Dr. Mary. And Dr. Mary incurred the following expenses. Just jumping over to the question, what are they looking for? What is the amount of expenses the doctor can deduct as business expenses on Schedule C, profit or loss from a business? Here's where it's my job to reiterate, make sure you're familiar with the tax forms, because if there's something here, it might be deductible somewhere on all the 1040 forms, but not specifically on Schedule C, really just depends. Make sure you're familiar with those. If you can do it on the actual forms, then you'll be able to do it on the exam. Starting off straight here, we've got investment expenses. Now, give you a second to think about this. Where would this possibly be deducted? Going once, going twice. Now, this would not be, unless it's specified that these are investment expenses specifically related to the business, maybe it's investment expenses related with building up the office or something like that, this is gonna be assumed to be something personal and unrelated to the business. As such, we're gonna ignore this. Now, where could this go? This possibly could go under the miscellaneous itemized deductions subject to the 2% floor on the Schedule A itemized. However, those were eliminated because of the Tax Cuts and Jobs Act from 2018 to 2025, depending on when you're watching this video. Also, it really just depends. The question will like, since it's so specific with the tax years there, the question would specify if that was gonna be included, but

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