Chap.6.Operations131 revised Sp08

Chap.6.Operations131 revised Sp08 - – TP has...

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Business Operations Chapter 6
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Taxable Income from Business Business profit Gross income less expenses …”from whatever source derived” can be realized in any form Not same as GAAP based net income
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Trade or Business Expenses Most are deductible under IRC sec 162 Related to carrying on a T or B Reasonable Paid or Incurred during year
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Ordinary Customary in that T or B Contrast to capital expenditures Necessary Appropriate or helpful
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Related to Trade or Business What is a trade or business? Conway Twitty case
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Other Issues Must document What if mixed-use – both business & personal??
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Has income or expense been realized? When is the item included in taxable income?
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Method of Accounting When are income or expense recognized? Single transaction or overall method Various - cash, accrual, hybrid IRC sec 446
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Cash Basis Method Recognition - payment or receipt Constructive Receipt of income
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Unformatted text preview: – TP has unrestricted access ■ Special rules – Inventory – Prepaid interest – Other prepaid items ■ Limitations on use Accrual Method ■ All events test – Obligation fixed – Amount determinable ■ Economic performance for certain expenses ■ Contrast with GAAP Bad debts ■ Bona fide debt ■ Must have a basis ■ Business bad debt – Ordinary deduction – Direct write-off method only Disallowances & Restrictions ■ Public policy – Bribes, fines, penalties, etc – Lobbying expenses – Illegal activities ?? ■ Expenses related to tax-exempt income ■ Related party accruals ■ Meals & entertainment Net Operating Loss ■ Excess of expenses over income ■ NOL deduction – Back 2 years – Forward 20 years ■ Determining the VALUE of a NOL Temporary & Permanent Differences – tax vs. books ■ Temporary - timing, will reverse ■ Permanent – will not reverse ■ Cause?? ■ Examples...
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This note was uploaded on 05/19/2008 for the course ACCT 3531 taught by Professor Ryan during the Spring '08 term at Temple.

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Chap.6.Operations131 revised Sp08 - – TP has...

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