Question

Please provide a topic reflection for one any area in these chapters and that interests and that would like to learn more about business income deduction and accounting mehods.

Answer 1

Answer.

Business Income Deductions

Gross income for business is same as determined for individuals. It includes "All income from whatever source derived".Business income includes profit from sale of inventory, income from service provided to the customers etc..

Deductions are allowed for all the ordinary and business expenses paid and incurred during the previous year in carrying on any trade or business. The expenses include office and administatrative expenditure, selling and distributive epenses, legel charges etc. The expenditure is allowable only to the extent which is reasonable. Following expenditures are not allowable :

1. Any amount of fines, penalties, illegal bribes

2. Any expenditure on illegal activities or which are against public policy

3. Any sum of political contributions

4. Personal expenditure

5. Mixed motive expenditure ( for both personal and business concerns)

6. Capital expenditure

Following are the specific business deductions:

1. Start-Up and Organizational expenditures
2. Business Gifts
3. Bad Debts
4. Losses on Disposition of business assets
5. Business Casualty Losses

Accounting methods include the procedure for determining a particular item of income or deduction with respect to the timimg when the taxpayer reports it as income or deduction.Accounting methods include Cash system of accounting, accrual system and hybrid system.

Under cash system, cash is only recognized when constructively received or paid whereas under accrual sysytem it is recognized when earned or received. Under All Eventstest system, it is recognized when right to receive income is fixed (i.e. all required events have occurred) and when the amt can be reasonably determined.