GENERAL LIGHTING CORPORATION
For the Year Ended December 31, 2006
Revenues and gains:
Rental revenue .
Total revenues and gains .
Expenses and losses:
Cost of goods sold .
F I F T E E N T H
E D I T I O N
Taxation of Retirement Plans
Contributions made by an employer (and sometimes the contributions by an employee) to a
"qualified" retirement plan are not subject to tax until the contributions are withdrawn from
Accounting Methods and Periods
Tax accounting consists of specialized rules for realizing and accounting for income. The
accounting rules also apply to expenses, but these rules are described in detail in the section
Taxation of Employee Benefits
Any benefit received by an employee is included in gross income unless there is a specific
provision that excludes the benefit.
I.Insurance Benefits Received
A.Benefits from taxpayer purchased policies - Health and disability
Gross IncomeOther Inclusions
Wages are reported on Form W-2 and are included in income in the year received.
A.Only tips received as cash, or on debit and charge cards, must be reported to the employer
for purposes of paying and wi
Tax Form for this Lesson: Form 1040
Prizes and Awards
A.The fair market value of these items must be included in income.
B.Prizes or awards can be excluded if they are for civic, artistic, educational, scientific, or
Gross IncomeConcepts, Interest, and Dividends
Tax Form for this Lesson: Form 1040 Schedule B
A.In general, income is broadly defined, so any realized increases in wealth should be
assumed to be included in income unless the tax law provide
Other Nonrecognition Transactions
Tax Forms for this Lesson: Form 6252
Other Loss Disallowances
A.Overview - There are three common provisions that mandate deferral of losses because of
opportunities to manipulate taxes. The first, wash sales, are loss
Capital Gains and Losses
Tax Forms for this Lesson: Form 8949, Form 1040 Schedule D
Only a "sale or disposition" of a "capital" asset is eligible for capital gains netting.
Capital Assets : Include all assets except inventory, ac
Like-Kind Exchanges and Involuntary Conversions
Tax Form for this Lesson: Form 8824
A.Overview - The deferral provision for direct (like-kind) exchanges is an example of
deferral provisions governing transactions for which significa
Section 1231 Assets
Tax Form for this Lesson: Form 4797
Section 1231 is designed to provide capital gain treatment to a net gain generated from
transactions involving involuntary conversions and the disposition of business assets.
Section 1231 AssetsCost Recovery
Tax Form for this Lesson: Form 4562
Depreciation deductions are allowed for assets used to produce income, but the deductions must
be calculated using cost recovery rules.
A.Cost recovery rules - Cost recov
Sales and Dispositions of Assets
Categories of Assets
Assets can be divided into three mutually exclusive categories: ordinary, Section 1231, and
A.Ordinary assets -1.Inventory and accounts/notes receivables are ordinary assets.
Tax Law Update Spring 2015
The Tax Increase and Prevention Act of 2014 extended the following provisions to 2014. Thus,
these items do apply for the 2014 tax law. However, Congress has not extended these provisions
to 2015 at the time of this writing.
Because all the partnership forms (GPs, LPs, LLP, LLLPs) automatically allocate income to
partners or members and can elect single (pass-through) taxation, the key more complicated
financial issues tend to relate to cor
Authority of Owners and Management
A.Agency law - In partnerships, agency law tends to govern regarding the authority of
partners to bind the partnership.
B.General principles - As a general rule, agency law provides:
1.An act of a partner
Rights and Duties
A.As noted earlier, absent agreement to the contrary partners are entitled to:
1.Equal management rights; and
2.Have their capital contribution repaid and to equally share in profits.
B.Partnership property belong
A.Sole Proprietorships - The sole owner of a sole proprietorship makes all important
decisions or delegates these decisions to someone of his or her choosing.
B.General Partnerships -1.Absent agreement to the contrary, all partners have equa
A.Sole Proprietorships -1.A sole proprietorship naturally terminates when the sole owner dies or otherwise
departs the business.
B.General Partnerships -1.Under RUPA, the fact that partners are added to or removed from the partnership
Money Laundering : This is the process by which one conceals the existence, illegal source, or
illegal application of income, and disguises that income to make it appear legitimate.
A.Background - Money launderi
Selection of a Business Entity
A.Businesses may be structured in numerous ways to attain various benefits. Ranging
from a simple sole proprietorship (one-owner business) to large multi-national
corporations, firms are structured to gain var
A.Sole Proprietorships -1.No formal filing is required for the creation of sole proprietorships.
2.However, to do business, a sole proprietorship, like other forms of organization, may
need to acquire a tax number and a license to,
A.The main goal of antitrust law is to promote economic competition.
B.Among the most important antitrust statutes are:
1.The Sherman Act (1890) -a.Section 1 prohibits "contracts, combinations, and conspiracies in restraint of
A patent is a government-granted exclusive right to make, use or sell an invention. Governments
protect patents in order to encourage inventive activity, just as they protect copyrights to reward
There are four primary types of intellectual property.
A.First, trademarks are any distinctive words, phrases, symbols, or designs adopted for the
purpose of identifying the origin of goods being offered for sale. The Nike "swoosh" i
Health and Safety
Workers' Compensation Act
A.Purpose - Provide nearly automatic compensation for employees who suffer work-related
injuries or diseases.
1.Many people think of workers' compensation as remedying only on-the-job injuries,
but it also pr
Union and Employee Relations
A.Much strife accompanied early attempts of workers to organize in unions when bargaining
with their employers, causing Congress to pass several important laws, including:
1.The Norris-LaGuardia Act - it prohib
Federal Fair Labor Standards Act (FLSA)
A.Applies to all businesses that affect interstate commerce.
B.Four major sections:
3.Child Labor Restrictions;
4.Equal Pay Provision.
Four Major Sections
Employee Retirement Income Security Act of 1970 (ERISA)
A.Purpose -1.Protect employee rights in existing pension plans.
2.Offer tax incentives to employers and employees to fund employee benefit plans by
providing that if the plans me