Business Income, Deduction, Accounting Methods, Property Acquisition, Investments, and Compensation

This preview shows page 1 - 2 out of 2 pages.

1. Business expense -MUST be used to generate business income-must be incurred in pursuit of profits; deduction amount must be reasonable, ordinary, and necessary (normal/appropriate & helpful) 2. Miscellaneous deductions -business type-unreimbursed business expenses 3. CALCULATE Domestic Production Activities Deduction -deduction for businesses that manufacture goods in the US; DPAD=9% * lesser of 1) business’s taxable income before the DPAD or 2) Qualified Production Activities Income -net income for selling or leasing property that was manufactured in the US; final deduction CANNOT exceed 50% of wages the business paid to employees for working in QPAI that year 4. Taxable Years -fixed period in which business reports income; 12-month rule -allows prepaid business expenses to be deducted when contract doesn’t exceed 12 months; UNICAP-less than 10 M over three years with last taxable year before current year; BDE may be deducted in taxable year if it becomes worthless 5. Cash -revenue recognized when property or services are constructively received; deductions recognized when expense is paid; Accrual -income recognized when all-events test is met: all events have occurred that determine right to receive income, amount can be determined with reasonable accuracy, earliest-as soon as service has been provided 6. Meals -may deduct 50% of business meals; MUST be reasonable, employee/taxpayer must be present, directly associated with active business conduct; Entertainment -may deduct 50% of allowable business entertainment; MUST entertain “business associates,” pay reasonable amount, entertainment must be “directly related” or “associated with” active conduct of business 7. Advance payment for services -Arthur Murray-MUST recognize unearned rental and interest income immediately upon receipt; NOT security deposits; income may be deferred for business purposes from prepaid goods and services-when payment is received even if service hasn’t been provided; exception for tax purposes-may be deferred one year; one year deferral DNA when income is earned by the end of the year of receipt, prepayment was included in financial reporting income, when prepayment was for interest or rent; goods-full-inclusion -rec immediately; deferral -earlier of when recognized for tax vs financial reporting 8. Startup expenses -NOT business expenses- Investigation expenses- if new and old are same business-investigation expenses are deductible in the year paid or incurred; if new and old are different-investigation expenses must be capitalized; 5000 may be deducted currently, excess can be amortized over a period of not less than 180 months 1. Confer property to business use- basis is lesser of 1) cost basis of the asset or 2) FMV on the date of conversion to business use 2. MACRS COMPUTATIONS- tangible personal and real property; must have-original basis, deprecation method, recovery

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture