1.26 Ark. Code R. 51-423(a)

Current through Register Vol. 49, No. 10, October, 2024

Rule 1.26-51-423(a) - Types of Deductions

In computing an individual's taxable income, the individual is permitted to claim certain deductions, Some of these deductions may be subtracted from gross income, while other types of deductions must be claimed as itemized deductions and subtracted from the individual's adjusted gross income. A Deduction from adjusted gross income is generally referred to as a "itemized deduction". To be deductible as a trade or business expense, an expense must be:

(1) an ordinary and necessary expense of the taxpayer's trade or business,

(2) paid or incurred during the tax year in which it is deducted,

(3) connected with a trade or business conducted by the taxpayer.

The business expenses of a sole proprietorship or a "statutory employee" are claimed on Schedule C of Form 1040.

A "trade or business," although not defined in the tax law, has been characterized as an activity carried on for a livelihood or for profit.

A profit motive must be present and some type of economic activity must be conducted. With respect to the profit motive, an activity is considered a business if it is entered into and carried on in good faith for the purpose of making profit. Moreover, a trade or business is characterized by regularity of activities and transactions and the production of income.

1.26 Ark. Code R. 51-423(a)