An expense incurred and paid for by an individual for personal use, or relating to one's employment or business. This can also relate to ongoing costs of operating a fixed asset, such as a car or a home. Some out-of-pocket expenses may be reimbursed by an employer or other group if the expense is incurred directly on their behalf. In addition, some out-of-pocket expense categories can be deducted from one's personal income taxes. Common examples of out-of-pocket expenses include gasoline for a car, taking a business client to lunch and certain medical payments such as prescription costs. Income tax deductions are often available for expenses related to education, healthcare, home upkeep and charitable donations. While tax deductions don't represent a direct reimbursement, there is an ancillary benefit to paying what is typically something that must be paid anyway.
A federal tax credit that provides an incentive for pharmaceutical companies to seek treatments and cures for rare diseases affecting Americans. Normally, companies may not be motivated to make a drug for a small population because sales may be insufficient to justify the research and development costs of creating the drug. The Orphan Drug Credit provides a credit of 50% of clinical drug testing costs for drugs being tested under section 505(i) of the Federal Food, Drug and Cosmetic Act. The credit can be applied whether the clinical tests are performed directly by the pharmaceutical company or are contracted out to a third party. In general, the testing must be conducted within the United States. Orphan drug credits allow pharmaceutical companies to create orphan drugs that target rare conditions.
All of the costs directly associated with acquiring an asset and putting it into use. The type of costs involved vary according to the type of asset. If this is machinery, original cost might include transport to your facility. If this is a security, the original cost may include commissions or related fees.
Any loss incurred by a taxpayer that is not considered a capital loss. Ordinary losses can stem from many causes, including casualty and theft. Ordinary losses that are larger than a taxpayer's gross income for the year can leave the client with zero taxable income on their 1040. Ordinary losses are not subject to the $3,000 annual limit that is imposed on capital losses; they can be for any amount. Business owners who fail to make a profit for the year can declare an ordinary loss on their returns. Ordinary losses are netted against ordinary income, which is taxed at the taxpayer's highest marginal tax rate. Ordinary losses can therefore offer the taxpayer greater tax savings than long-term capital losses.
Expenses incurred by individuals for their business or primary employment. "Ordinary and necessary" expenses are categorized as such for income tax purposes, and these expenses are generally considered tax deductible in the year they are incurred.These expenses are outlined in Section 162(a) of the Internal Revenue Code and must pass basic tests of relevance to business, as well as necessity. This section of the tax code is the source of a large number of deductions by individuals, especially in years of transition between jobs or careers. Typical expenses that can be included in the "ordinary and necessary" group include a uniform for work or business software purchased for a home computer. Startup costs associated with setting up a new business may also be tax deductible, but typically must be spread out over several years; these costs do not qualify as ordinary and necessary for IRS purposes.
A set of rules that prohibits using passive losses to offset earned or ordinary income. Passive activity loss rules prevent investors from using losses incurred from income-producing activities in which they are not materially involved.Being materially involved with earned or ordinary income-producing activities means the income is active income and may not be reduced by passive losses. Passive losses can be used only to offset passive income. The key issue with passive activity loss rules is material participation. If the taxpayer does not materially participate in the activity that is producing the passive losses, then those losses can only be declared against passive income. If there is no passive income, then no loss can be deducted. Passive activity losses can only be carried forward; they cannot be carried back.
An individual's total annual gross earnings coming from wages, business enterprises and various investments. Personal income is also known as your "before-tax income" and is used in calculating an individual's adjusted gross income for income-tax purposes.
The dollar amount that each individual taxpayer is able to deduct for him or herself or a dependent each year. A separate personal exemption is accorded to every man, woman and child in the U.S. that must file a return. For example the amount of the personal exemption was $3,500 in 2008 and $3,650 for 2009. The amount of each personal exemption that may be claimed is subject to an adjusted gross income phaseout. For example, in 2008, single filers could only claim the entire amount of the exemption if their incomes were less than $159,950, while head of household filers faced a limit of $199,950. Married taxpayers filing jointly could not make more than $239,950 to claim the full amount for personal exemptions, or $119,950 if they file separately. In 2009, the phaseouts begin at $250,200 for married couples filing jointly, $125,100 for married taxpayers filing separately, $166,800 for single taxpayers and $208,500 for heads of households.
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