26911415
Description
Mind Map by Megan Heflin, updated more than 1 year ago
|
Created by Megan Heflin
over 3 years ago
|
|
Business Income, Deductions, and Accounting Methods
- Business gross income
- Includes gross profit from inventory sales, income from services provided to customers, and income from renting property to customers
- A business is allowed to exclude certain types of realized income from gross income, such as municipal bond interest
- Includes gross profit from inventory sales, income from services provided to customers, and income from renting property to customers
- Business Expenses
- Must be incurred in pursuit of profits, not personal goals
- A deduction must be ordinary and necessary
- Expense that is normal or appropriate and that is helpful or conducive to the business activity
- Expense that is normal or appropriate and that is helpful or conducive to the business activity
- Only reasonable amounts are allowed as deductions
- When the amount paid id neither extravagant nor exorbitant
- When the amount paid id neither extravagant nor exorbitant
- Must be incurred in pursuit of profits, not personal goals
- Limitations on business deductions
- No business deductions are allowable for expenditures that are against public policy (bribes) or are political contributions
- Expenditures that benefit a period longer than 12 months generally must be capitalized
- No deductions are allowable for expenditures associated with the production of tax-exempt income
- Personal expenditures are not deductible
- Expenses incurred for personal motives
- Expenses incurred for personal motives
- No business deductions are allowable for expenditures that are against public policy (bribes) or are political contributions
- Mixed-motive expenditures
- Special limits are imposed on expenditures that have both personal and business benefits
- Entertainments expenses are generally not deductible
- Only 50 percent of business meals are deductible
- Contemporaneous written records of business purpose are required
- Special limits are imposed on expenditures that have both personal and business benefits
- Business Interest Limitation
- The deduction of business interest expense is limited to business interest income plus 30% of the business's adjusted taxable income for taxpayers with average annual gross receipts in excess of $26 million
- Adjusted taxable income is taxable income allocable to the business computed without interest income and before depreciation and interest expense deductions
- Disallowed business expense can be carried forward indefinitely
- The deduction of business interest expense is limited to business interest income plus 30% of the business's adjusted taxable income for taxpayers with average annual gross receipts in excess of $26 million
- Specific business deductions
- Losses on dispositions of business property
- Businesses are allowed to deduct losses incurred when selling or disposing of business assets
- Businesses realize and recognize a loss when the asset's tax basis exceeds the sale proceeds
- Businesses are allowed to deduct losses incurred when selling or disposing of business assets
- Business casualty losses
- Businesses can incur losses when their assets are stolen, damaged, or completely destroyed by a force outside of their control
- Businesses may deduct losses in they year the casualty occurs or is discovered
- Businesses can incur losses when their assets are stolen, damaged, or completely destroyed by a force outside of their control
- Losses on dispositions of business property
- Accounting periods
- Individuals and proprietorships generally account for income using a calendar year-end
- Corporations are allowed to choose a fiscal year
- A fiscal year ends on the last day of a month other than December
- A fiscal year ends on the last day of a month other than December
- Partnerships and other flow-through entities generally use a tax year consistent with their owners' tax years
- Individuals and proprietorships generally account for income using a calendar year-end
- Revenue recognition under the accrual method
- Income is recognized when earned (all-events) or received (if earlier)
- Under the all-events test, income is recognized when the business has the right to receive payment
- Taxpayers can generally elect to defer recognition of prepaid (unearned) income for goods and services, but the deferral only lasts for one year
- Income is recognized when earned (all-events) or received (if earlier)
- Inventories
- Businesses with three-year average annual gross receipts in excess of $26 million must use the accrual method to account for substantial inventories
- The UNICAP rules require capitalization of most indirect costs or production
- The LIFO method is allowed if also used for financial reporting purposes
- Businesses with three-year average annual gross receipts in excess of $26 million must use the accrual method to account for substantial inventories
- Accrual of business-expense deductions
- Both all-events and economic performance are required for deducting accrued business expenses
- The all-events test requires that the business be liable for the payment
- Economic performance generally requires that the underlying generating the liability has occurred in order for the associated expense to be deductible
- Both all-events and economic performance are required for deducting accrued business expenses
Want to create your own Mind Maps for free with GoConqr? Learn more.