Alabama Administrative Code
Title 810 - ALABAMA DEPARTMENT OF REVENUE
Chapter 810-3-17 - ITEMS NOT DEDUCTIBLE
Section 810-3-17-.01 - Items Not Deductible
Universal Citation: AL Admin Code R 810-3-17-.01
Current through Register Vol. 43, No. 02, November 27, 2024
(1) Costs and expenses which are not deductible for income tax purposes include, but are not limited to:
(a) Personal, living,
and family expenses such as:
1. Premiums paid
for life insurance by the insured.
2. Cost of insuring a dwelling owned and
occupied by the taxpayer as a personal residence.
3. Expenses of maintaining a household,
including amounts paid for rent, water, utilities, domestic services, home
repair or improvements, etc.
4.
Expenses incurred for care of dependent children including child support, even
if both spouses work.
5. Losses
sustained by the taxpayer upon the sale or other disposition of property held
for personal, living, and family purposes.
6. Travel expenses or automobile expenses not
deductible under Section
40-18-15.
7. Cost of wearing apparel unless such
wearing apparel is required as a condition of employment and is not suitable
for street wear.
8. Amounts paid as
damages, attorneys' fees and other costs of suit to recover such damages.
However, damages in settlement of a suit, claim or judgement arising out of a
trade or business or transactions entered into for profit are
deductible.
9. Attorneys' fees paid
in a suit for separation or divorce.
10. Losses sustained and expenses incurred in
illegal transactions.
11. Dues to
fraternal and social organizations, etc.
12. Gambling losses in excess of
gains.
13. Adoption expenses - for
tax years prior to January 1, 1991 are not deductible. For tax years subsequent
to December 31, 1990, see Rule
810-3-15-.24.
(b) Capital expenditures. No
deduction shall be allowed for:
1. Any amount
paid for new buildings or for permanent improvements or betterments made to
increase the value of any property or estate, or
2. Any amount expended in restoring property
or in making good the exhaustion thereof for which an allowance is or has been
made in the form of a deduction for depreciation, amortization, or
depletion.
(c) Premiums
paid on life insurance. Premiums paid on a life insurance policy covering the
life of any officer or employee of the taxpayer, or any person (including the
taxpayer) who is financially interested in any trade or business carried on by
the taxpayer, when the taxpayer is directly or indirectly a beneficiary of the
policy.
(d) Organization and
financing expenses.
1. For tax years
beginning before January 1, 1985, expenses in connection with the organization
or reorganization of a business enterprise, such as fees for incorporating,
attorneys, accountants, appraisers, and commissions or other expenses in the
issuance or sale of capital stock are properly capitalized when incurred or
paid. Such expenses are not deductible from gross income until the business for
which the expenses were incurred is abandoned and the business organization
itself, or, in the case of a reorganization, the successor to the business
organization, has been dissolved, or has completely wound up its affairs,
whichever is later.
2. For tax
years beginning after December 31, 1984, organizational expenditures incurred
by a corporation may be amortized over a period of not less than 60 months. See
Rule 810-3-35-.01(7).
3. For tax years beginning after December 31,
1989, certain start-up costs may, if the taxpayer so elects, be amortized over
a period of not less than 60 months even if the costs do not qualify for
amortization as organization fees. See Rule
810-3-15-.23.
(e) Amortization of bond premiums.
Premiums paid on bonds purchased by individuals are part of the cost of such
bonds, and no portion of such premiums will be allowed as a deduction from
gross income until the bonds are sold or redeemed. An exception to this general
rule occurs in the case of estates and trusts where the trustee has no
alternative other than to protect the corpus of the estate or the trust. In
such cases the Department will permit the premium to be amortized over the life
of the bond.
(f) Fines and
penalties.
1. Fines imposed for violations of
law, or penalties imposed for legal infractions, misconduct or failure to
adequately or timely comply with laws or regulations are not deductible. Such
nondeductible items include:
(i) penalties
for late payment or nonpayment of taxes.
(ii) punitive damages imposed by a court for
violations of civil or criminal laws (including overweight or speeding fines or
penalties).
2.
"Penalties" imposed by contract as liquidated damages are deductible. Such
items include:
(i) penalties for early
withdrawal of savings certificates.
(ii) penalties for failure to complete a
construction contract within a specified time.
Authors: Mary L. Gifford, Yeteva Johnson, Kathy Alabi
Statutory Authority: Code of Ala. 1975, §§ 40-2A-7(a)(5), 40-18-17.
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