Taxes Chapter 7

Front 1

Deductions

Back 1

Allowed for all ordinary and necessary business expenses

Front 2

Expenses

Back 2

that are regular and recurring in nature and don't add materially to the value or useful life are deductible

Front 3

Capitalized Asset

Back 3

Expenses that create or enhance the useful life of an asset beyond a year must be capitalized

Front 4

Tax subsidies that permit expensing

Back 4

Research and Development
Advertising
Soil and water conservations
Intangible drilling and development costs for oil companies

Front 5

Basis

Back 5

unrecovered dollars represented by an asset

Front 6

Basis calculation

Back 6

Initial basis reduce by depreciation

Front 7

cost recovery method - inventory

Back 7

Cost of goods sold
Beginning Inventory
+ Purchases
=Goods available for sale
- ending inventory
=cost of goods sold

Front 8

Unicap Rules

Back 8

firms must capitalize all direct costs of manufacturing, purchasing, or storing inventory (direct materials and labor) and indirect costs that are incurred by reason of the performance of production or resale activities.

Front 9

Included in Unicap

Back 9

Officers Compensation
Pension and retirement benefits
Rent paid on buildings and equip. used in manufacturing
Premiums paid to carry property insurance on production assets
Repair and maintenance of production assets
Cost recovery deductions for production assets

Front 10

Depreciation Conventions

Back 10

Personalty property
Half year convention - 1st year half year depreciaton used

If more than 40% is placed in service last 3 months, must use midquarter convention. 1.5 months in service first quater 10.5, 2nd 7.5, 2rd 4.5, fourth 1.5

Front 11

Mid month convention - Realty

Back 11

Realty is treated as being placed in service midway through the month

Front 12

Section 179 Expensing Election

Back 12

$139,000 tangible personalty and off the shelf software which is amortizable over 3 years

Front 13

Section 179 Expense

Back 13

limited to taxable income computed with out regard to the deduction

Front 14

Goodwill Amortizations

Back 14

15 years
Also goodwill testing