USA Deductions of expenses paid from non-taxable funds

[Tom.]

Am I allowed to deduct expenses that were paid from non-taxable funds on my personal form 1040 return?

 

[UncleSam]

The answer is... it depends on what the expenses were as it relates to whether it is deductible. If, for example, the expenses were charitable contributions the answer would be a yes if you were for some reason itemizing on your schedule A. Send me direct message or contact a CPA to get more into specifics and the answers.

 

[Tom.]

Thanks for your response. Yes, the expenses are what would normally be considered deductible. Medical, charitable contributions, etc. I file a corporate return for an LLC (treated as an s-corp) and a personal return. The deductions in question would be taken via the personal return. The non-taxable funds are in their own account, separate and apart from the tax related accts and not listed as income.

These expenses were mistakenly paid from the non-taxable funds.

 

[Dave In Capital]

Would this be the paycheck protection act funds? I remember there was some controversy about being able to deduct expenses from those funds because on the surface it appears like a double tax benefit. But I think the what the critics overlook is that only an entity's profits are truly "taxable," and that in theory acceptance of said funds is preconditioned on being in a state of financial precariousness in the first place. After all we consider the times that are upon us. I haven't seen the way it plays out on a tax form, but I would think that any profits which do appear are offset by the amount of the funding so as to ensure it is non-taxable. For example, we'll suppose net income was $500. The funding was $600. As a result, a netting of the $600 against the $500 results in a loss of $100.

 

[Tom.]

Hi Dave. They're not PPAF, but they are legally non-taxable funds.