Accounting Principles: Questions And Answers

The $5,000 stock trading loss that Spouse B incurred would be a capital loss. But only $3,000 of the loss will be able to be deducted in the current year, the other $2,000 will be a loss carryover.

21 Insurance or other reimbursement (whether or not you filed a claim). See the instructions for line 3 . . . . 22 Note: If line 20 is more than line 21, skip line 22. Gain from casualty or theft. If line 21 is more than line 20, enter the difference here and on line 29 or line 34, column (c), except as provided in the instructions for line 33. Also, skip lines 23 through 27 for that column. See the instructions for line 4 if line 21 includes insurance or other reimbursement you did not claim, or you received payment for your loss in a later tax year Fair market value before casualty or theft . . . . Fair market value after casualty or theft . . . . . Subtract line 24 from line 23 . . . . . . . . Enter the smaller of line 20 or line 25 . . . . .

A taxpayer bears the burden of proving his entitlement to a business expense deduction. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933); Burrus v. Commissioner, T.C. Memo. 2003-285. Section 7491(a) provides that the burden of proof shifts to respondent under certain specified conditions. Section 162 provides that a taxpayer who is carrying on a trade or business may deduct ordinary and necessary expenses incurred in connection with the operation of the business. Section 212 provides a deduction for expenses paid or incurred in connection with an activity engaged in for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income. For the expenses to be deductible under IRC § 162 or 212, the taxpayer must engage in or carry on an activity to which the expenses relate with an actual and honest

If an item meets one of those requirements, the company can deduct the cost of the item during the year in which the item is first used or consumed. If not, the company generally needs to “capitalize the amounts paid to acquire or produce tangible property” under Reg. §1.263(a)-1. However, there is also an exception called de minimis safe harbor election under the Reg. §1.263(a)-1(f). In order to utilize this election, a company must have written accounting procedures in place before January 1, 2014, The written accounting procedures must clarify that for non-tax purposes the company expenses items with the amount paid to a property costing less than a specific amount of money or a property with economic useful life of 12 months or less. The election provides business with the option to expense/deduct annually up to $5,000 per item/invoice if the company has an applicable financial statement (AFS), or up to $500 per item/invoice if the company does not have an AFS. An AFS is defined in

The allocations of bases were then applied to the potential sale of the property totaling $1,200,000. This creates a sale price of $809,715 for the business and land and $453,295 for the house. This followed Publication 551 which states that you take the fair market value of the particular asset given up divided by the total fair market value at the time of purchase, then times it by the sale price. This will give you what to allocate for each asset in order to calculate your gain. If you were to sell the business, home, and land, there would be a total taxable gain of $926,000 consisting of $349,785 attributable to the house and $576,215 attributable to the business before any tax effects. Our recommendation of selling the house with an exclusion and making a non-taxable like-kind exchange for the business will greatly reduce the taxes on the transaction. If the house is sold, it will be eligible for a $250,000 exclusion on the taxes of the sale, which will result in total taxable gain of $102,785, after the depreciation recapture for the home office. The like-kind exchange for the business will involve trading the business for another business, which means you could buy a bed and breakfast without making a separate transaction and you will defer taxes. The tax payment will be deferred until the traded property is disposed of. The total

As per your request of an analysis of the following topics: Adjusting lower of cost or market inventory on valuation, Capitalizing interest on building construction, Recording gain or loss on asset disposal, and Adjusting goodwill for impairment. The Financial Accounting Standards Board (FASB) established clear guidelines addressing the items mentioned above. I will outline that FASB generally accepted accounting standards (GAAP) affect each area, and how these improvements to the company will benefit the company’s financial health (FASB, 2010).

Code Section 263 administers certain requirements of what is not to be expensed. On the other hand Sec 162 presents the legal grounds to deduct of all ordinary and necessary expenses incurred in way of carrying on the business operation. Necessary costs for Sec 162 does encompass values related to maintenance and repairs, which is how Sec 263 and Sec 162 relate to one another (I.R.C. §1.162-4). Capitalization requirements in Sec 263, requires amounts of production, acquisition, and improvement of tangible property to not be expensed out but capitalized and amortized over a period of time (26 U.S.C. §263(a)1).

Under Section 179, the IRS allows you to deduct the full price of the equipment you purchased or leased during the year. By taking this deduction, you are essentially deducting the full cost of the equipment from your company's gross income.

Instructor Explanation: C. The loss on the business auto of $1,000 is an ordinary loss, while the loss on the stock investment of $1,000 is a capital loss. The loss on the yacht of $1,000 is personal and, therefore, cannot be deducted. Page 4-30 and Example 45. Points Received: 0 of 5 6. Question:

Question #2: What impact does the election of a Sec. 179 have on a taxpayer’s tax liability? Have there been any recent changes to the Sec. 179 limits?

To stimulate investments for businesses, they were allowed to “deduct the full cost of depreciable business assets in the year the investment was made. Businesses received special depreciation allowance for certain property” (What did the 2008-10,” 2010, para. 3). The Economic Stimulus Act of 2008 also benefited the nontax recipients by increasing their

The cost basis is the original value of an asset or security at the time it was purchased plus the additional costs associated with it such as settlement and closing costs, fees, commissions, taxes and other adjustments paid to acquire the asset either paid in cash, in trade or through a loan. The cost basis helps determine the capital loss or gain on the sale, exchange, or other disposition of property as well as uses it to figure out deductions for depreciation, amortization, depletion, and casualty losses. If one uses the property for both business or for production of income and for personal purposes, one must allocate the basis based on the use. Only the basis allocated to the business or the production of income part of the property can be depreciated. Your original basis in property is adjusted (increased or decreased) by certain events. For example, if you make improvements to the property, increase your basis. If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis.

Assuming that the investment property has not been of main residence to the taxpayer, exemptions stated in s118-110(1) will not entitle the taxpayer to the full capital gains tax (CGT) discount as the dwelling has been used to produce assessable income.

(NOL) Net Operating Loss Carryforward. Companies can use them to reduce their tax expense. The Internal Revenue Service (IRS) allows businesses to carry net operating losses (NOL) forward 20 years. At that point, the losses expire, individuals with capital losses can only claim up to $3,00 in capital losses against their income, but if they have losses greater than this amount, they may carry them forward to future years. For example, if an individual has $9,000 in capital losses, he may claim $3,000 the current tax year, $3,000 the following year and the final $3,000 the year after that. (www.Investopedia.com)

The hobby loss rules under IRC § 183 limit the deductibility of certain items with respect to an activity that is not engaged in for profit. The history of IRC § 183 indicates that one of the primary motivating factors behind its passage was Congress’ desire to create an objective standard to determine whether a taxpayer was carrying on a business for the purpose of realizing a profit or was instead merely attempting to create and utilize losses to offset other income (Nickerson vs Comm, 1983). Congress recognized that “wealthy individuals have invested