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Chapter 8 Business Income, Deductions, and Accounting Methods Copyright   © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
Learning Objectives ,[object Object],[object Object],[object Object],[object Object],[object Object],8-
Business income and deductions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Reasonableness example ,[object Object],[object Object],[object Object],[object Object],8-
Reasonableness solution ,[object Object],[object Object],[object Object],[object Object],8-
Statutory limits on business expense deductions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Capital expenditures ,[object Object],[object Object],[object Object],[object Object],[object Object],8-
Specifically authorized business deductions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
12-month rule example ,[object Object],[object Object],[object Object],[object Object],[object Object],8-
12-month rule solution ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Business expenses with personal benefits ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Travel example ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Travel solution ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Problems ,[object Object],[object Object],[object Object],[object Object]
Problems ,[object Object],[object Object],[object Object],[object Object],[object Object]
Problems ,[object Object],[object Object],[object Object],[object Object]
Accounting for taxable income ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Accounting periods ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Choosing an accounting period ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Accounting methods ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Accounting methods ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Cash method ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Accrual method - Income ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Accrual Income question ,[object Object],[object Object],[object Object],[object Object],8-
Accrual – prepaid income ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Prepaid income example ,[object Object],[object Object],[object Object],[object Object],[object Object],8-
Advance payment solution ,[object Object],[object Object],[object Object],[object Object],8-
Inventories ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Inventories - UNICAP  ( Uni form  Cap italization)  ,[object Object],[object Object],[object Object],8-
Inventory flow assumptions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Accrual method - deductions (i.e. when can you deduct expenses that haven’t been paid yet?) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Economic performance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Economic performance example ,[object Object],[object Object],[object Object],8-
8- Liability is  incurred under   IRC § 461 Capitalize (e.g., IRC  §§  263(a)  or   471) Deduct (e.g., IRC § 162) 12-month rule Disallow Meals & Entertainment Spousal Travel Club Dues Lobbying Etc.
Choosing or changing an accounting method ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],8-
Chapter Summary ,[object Object],[object Object],[object Object],[object Object],[object Object],8-
To Do… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Ch 8 Business Income Deductions Accounting Methods

  • 1. Chapter 8 Business Income, Deductions, and Accounting Methods Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
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  • 34. 8- Liability is incurred under IRC § 461 Capitalize (e.g., IRC §§ 263(a) or 471) Deduct (e.g., IRC § 162) 12-month rule Disallow Meals & Entertainment Spousal Travel Club Dues Lobbying Etc.
  • 35.
  • 36.
  • 37.

Editor's Notes

  1. Note Hobbies are not businesses. Personal activity that may generate revenue. Taxpayer generally has burden of proving their intent to make a profit. Specific factors listed in Regulations such as: History of income or loss Elements of personal pleasure or recreation Deductions only allowed to extent of revenue.
  2. Bad debts are discussed in two places – once in front and more details near the end of the chapter. It is important to note that cash basis taxpayers have NO accounts receivable so there is no bad debt deduction. It might also be noted that in contrast to bad debts, cash basis taxpayers can deduct bad loans – they have basis in these assets. However, this brings up whether a lone is a business loan (ordinary) or nonbusiness (short term capital). Best to save this discussion for capital assets. Business losses are also rather complex (e.g. section 1231 treatment) – this chapter merely serves to introduce the notion that business losses are deductible rather than discuss the nature of the deduction.
  3. Note that the time spent on an activity may not be conclusive for the primary purpose – a question of fact and circumstance
  4. Note that the 52/53 week can facilitate closing of books.
  5. Note that the first year for most fiscal year entities are typically short years Note that some exceptions are skipped – the “natural” business year end and the deferral year end
  6. We skip a discussion of inventory flows here, but a slide may be added if students are confused.
  7. These rules only apply to accrual basis taxpayers.
  8. Include a few of the key examples from the book.