Card Set Information
What tax consequences do you look for with a business owner?
1. Income, including prepaid.
2. Timing for reporiting income.
3. Expenses (supplies, salaries, etc)
4. Depreciable/amortizable capital expenditures.
Cash Method Accounting - Income
- report it when you get it. Including
- constructive receipt (when you could have had it)
- cash equivilent (something that the bank will cash)
- economic benefit (to the extent of ascertainable value)
Cash Method Accounting - Deduction
- deduct when paid
- no constructive payment
Accrual Method Accounting - income
All events test
- earned through performance OR
- payment received OR
- payment due under agreement between TP and payor
Accrual Method Accounting - Deductions
All events test:
- fixed obligation AND
- can be determined with reasonable accuracy AND
- economic performance
(so if you have an obligation to pay and performance is done, you can deduct even though you haven't paid yet).
- real debt (obligation to repay)
- gone bad (attempts to collect, NOT forgiveness, compromise, compensation)
- what type? (business = ordinary. Non = STCL)
- how much? up to the amount of your basis in it (you only have basis in it if you're an accrual method TP)