Accting 123A 2

Accting 123A 2 - Deductible Expenditures Expenses Must also...

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Deductible Expenditures Expenses Must also be reasonable in amount Paid or incurred. Bills are considered paid when mailed When a charge has been made in can be deducted even on credit card Notes are not considered a payment Prepaid expenses – CASH METHOD Rents Deductible when paid if Period doesn't exceed 1 year Obligation to prepay Insurance Deductible over policy period Interest Deductible over loan period Exception for points Can deduct interest if the loan was related to purchase or improvement of your own home Other Deductible if: Asset consumed by end of next year Business purpose Doesn't distort income Problem 7-28 On dec. 31, taxpayer prepays 3000$ of interest on home mortgage, how much is deductible in dec? NONE A person takes out a loan to buy a home, is all the interest deductible? YES Points being paid once again but loans used to purchase a condo and intended to rent it out how much is deductible? Just the first month 'cuz its not used for personal purposes points paid to refinance, deductible? No, the deduction is amortized over the life of the year Problem 7-29 12000$ rent prepaid in 2008 for 12 months, does this all go toward 2008 or 2009? yes what if they used accrual method of accounting, they would deduct expense when all events test is met and is measurable, and economic occurrence, Ordinary means whether others in a similar type of business would be expected to pay a similar cost. Related party transactions Loss on sale If property is sold at a loss to a related party, its not deductible Accrual of Expenses If you pay an accrued expense to a related party, the only way to deduct is if both are using different methods of accounting Related Parties Family Members Spouse Ancestors Lineal Descendants Shareholders is related if they own more than 50% of the stock Accrued expenses – Any stock ownership
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Selling property to PSC where its sold at a loss, in order for the related party rule to be applicable the shareholder must own more than 50% of the stock. Other Relationships 7-49 Mom sold stock to son for 8,000$ Mom paid 11,000$ for stock 11,000$ Loss <3,000> The loss is not deductible because they are a related party Son sold stock for 12,000 son paid 8000 -8,000 Gain 4000 The son is able to use his mother's loss to reduce his gain so he gets less tax 4000 – 3000 = $1000 taxable 7-51 B. an individual owns 20 shares of stock of RST corp., 200 shares were issued, at first B isn't a related party, but add in others: B 20 Shares (Brother) C 30 Shares (Partner) D 40 Shares This shows B and D are in a partnership, each own 50% All the shares D holds are considered to be held by B (Corp.) E 100*.6 = 60 shares B owns 60% of Corporation E, B is considered to own the
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This note was uploaded on 09/08/2010 for the course BUS 123A at San Jose State.

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Accting 123A 2 - Deductible Expenditures Expenses Must also...

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