Ricky Schmidt and Suzetta J. Schmidt - Page 18

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          medical payments made by Hillside Dairy pursuant to its medical             
          plan (including the insurance premiums and other medical care               
          expenditures) are excludable from the Schmidts’ gross income                
          under section 105(b).                                                       
               Section 162(a) permits a taxpayer to deduct all ordinary and           
          necessary expenses incurred during the taxable year in carrying             
          on the taxpayer’s trade or business.  An expense is ordinary if             
          it is customary or usual within a particular trade, business, or            
          industry or relates to a transaction “of common or frequent                 
          occurrence in the type of business involved.”  Deputy v. du Pont,           
          308 U.S. 488, 495 (1940).  An expense is necessary if it is                 
          appropriate and helpful for the development of the business.  See           
          Commissioner v. Heininger, 320 U.S. 467, 471 (1943).                        
               When payments for medical care are properly excludable from            
          an employee’s income because they are made under a “plan for                
          employees,” they are deductible by the employer as ordinary and             
          necessary business expenses under section 162(a).  Sec.                     
          1.162-10(a), Income Tax Regs.  Consequently, Hillside Dairy is              
          entitled to deduct the insurance premiums and medical                       
          reimbursement payments under section 162(a).                                
          C.   Food, Utilities, Property Insurance, Property Taxes, and               
               Depreciation                                                           
               1.   Section 119:  Employer-Provided Meals and Lodging                 
               We next decide whether the food (food for employees and                
          meals and entertainment) and lodging-related expenses (utilities,           





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