CTP_(08)_Chapter_05 - Chapter5 Income Or Loss From A...

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Chapter 5 Income Or Loss From A Business
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  © 2008, Clarence Byrd Inc. 2 Business Income Defined ITA 248 Includes a profession, calling, trade, manufacture or undertaking of any kind whatever
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  © 2008, Clarence Byrd Inc. 3 Business Income In The Act Subdivision b (ITA 9 Through 37) 9-11 – Basic Rules (Includes Inventory Valuation) 12-17 – Inclusions 18-19.1 – General Limitations 20-21 – Specific Deductions Income Tax Act
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  © 2008, Clarence Byrd Inc. 4 Problem Areas Business Vs. Employment Active Vs. Passive (Property Income)
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  © 2008, Clarence Byrd Inc. 5 Business Income Vs.  Capital Gains Importance - Gains [(45% Tax Rate)(1/2)] = 22.5% vs. 45.0% Importance - Losses 1/2 Deductible Only Against Capital Gains
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  © 2008, Clarence Byrd Inc. 6 Criteria Intention And Course Of Conduct Number And Frequency Of Transactions Relationship To Taxpayer’s Business Supplemental Work On Property Nature Of Assets Objectives In Articles Of Incorporation
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  © 2008, Clarence Byrd Inc. 7 Business Income And GAAP Similarities Accrual Net Concept Major Differences Amortization (Depreciation) Other Allocations Permanent Differences Non-Arm’s Length Transactions Unreasonable Expenses Reasonableness
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  © 2008, Clarence Byrd Inc. 8 Inclusions Amounts Received Or Receivable ITA 12 Establishes The Accrual Basis
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  © 2008, Clarence Byrd Inc. 9 Reserves A Deduction For Future Events General Rules Only For Items Listed In ITA 20 If Deducted In One Period, It Must Be Included In The Following Period
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  © 2008, Clarence Byrd Inc. 10 Specific Reserves ITA 20(1)(l) Bad Debts ITA 20(1)(m) Undelivered Goods And Services ITA 20(1)(n) Unpaid Amounts
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  © 2008, Clarence Byrd Inc. 11 Bad Debts Example: At December 31, 2007, Jones Inc. estimates that $2,000 of its $50,000 in Accounts Receivable will be uncollectible. ITA 20(1)(l) - Deduct $2,000
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  © 2008, Clarence Byrd Inc. 12 Bad Debts During 2008, write offs total $2,200. ITA 20(1)(p) - Deduct $2,200
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CTP_(08)_Chapter_05 - Chapter5 Income Or Loss From A...

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