Taxes: Deductions - Basic Principles Flashcards Preview

REG > Taxes: Deductions - Basic Principles > Flashcards

Flashcards in Taxes: Deductions - Basic Principles Deck (5)
Loading flashcards...
1

Taxes:
Deductions - Basic Principles
Disallowed Deductions

Disallowed Deductions
- no personal expenses unless specifically allowed, including personal legal
- expenditures benefiting more than one period must be capitalized
- No expenses can be deducted that are against public policy (COGS of illegal business are deductible.
- Not lobbying at state/federal level. Okay at local.
- Public companies: compensation > $1M per person for CEO and 4 other highest officers
- life insurance premiums, funeral expenses, and disability insurance premiums (unless someone else other than person paying is beneficiary).

2

Taxes:
Deductions - Basic Principles
Accounting Principles

Accounting Principles
- credit card = cash basis
- accrual must be used if inventory and average gross receipts exceed $1M
- prepaids, immediate deduction if benefits do not extend longer than 12 months, the year of expenditure, if not met, then spread over period applied
- prepaid interest must always be amortized over life of loan

3

Taxes:
Deductions - Basic Principles
Accrual Method - Unclear Situations

Accrual Method - Unclear Situations
- if obligation for goods/services in future, no deduction until provided
- obligation to pay for goods/services in future, no deduction until provided
- only deduct refunds, rebates, awards, prizes, provision of warranty work, service contracts, taxes, and insurance premiums when actually paid
- recurring item and performed 8.5 months after close of year, include in previous year
- vacation pay and bonuses only paid in 2.5 months.

4

Taxes:
Deductions - Basic Principles
Capital Expenditure vs. Repair
New Regulations

Capital Expenditure vs. Repair
- expenditures that ^ life or value of property are capitalized
- costs that adapt property to new use are capitalized
- repair = maintain normal value and doesn't increase life of property
- costs to place an asset in service are part of the cost of the property including taxes
- immaterial costs are expensed
New Regulations
- all costs of acquisition are included except employee comp and overhead (can elect to capitalize these)
- a UOP is all components that are functionally interdependent (unless depreciated separately)
- includes cost to obtain clean title
- de minimus safe harbor election:
- written procedures on how to expense items with a life of 12 months or less
- expenses items for accounting/book records
- ensure that $5,000+ items are capitalized
- routine maintenance is expensed

5

Taxes:
Deductions - Basic Principles
Qualifying Small Tax Payers

Qualifying Small Tax Payers

Decks in REG Class (109):