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by: Jeremy Walker

kjgjytfjylblb Acct 415

Jeremy Walker
U of L

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Advanced Taxation
Lisa Blum
Class Notes
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This 3 page Class Notes was uploaded by Jeremy Walker on Monday August 22, 2016. The Class Notes belongs to Acct 415 at University of Louisville taught by Lisa Blum in Fall 2016. Since its upload, it has received 10 views. For similar materials see Advanced Taxation in Accounting at University of Louisville.


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Date Created: 08/22/16
includes all costs needed to purchase the asset, prepare it for use, and begin using it.  book and tax purposes Half­Year Convention One­half of a year's depreciation is allowed in the first and the last  year of an asset's life. The IRS depreciation tables automatically  account for the half­year convention in the acquisition year. If an  asset is disposed of before it is fully depreciated, only one­half of the  table's applicable depreciation percentage is allowed in the year of  disposition. Real property is depreciated using the straight­line method. Real property uses the mid­month convention. Residential property has a recovery period of 27.5 years. Nonresidential property placed in service  on or after May 13, 1993, has a life of 39 years. Taxpayers may immediately expense up to $5,000 of organizational expenditures and $5,000 of start­up costs.The immediate expense rule has  a dollar­for­dollar phase­out that begins at $50,000 for organizational expenditures and for start­up costs. Thus, when organizational  expenditures or start­up costs exceed $55,000 there is no immediate expensing. No business deductions are allowable for expenditures against  public policy (bribes) or political contributions.Expenditures that benefit a period longer than 12 months generally must be capitalized. No  deductions are allowable for expenditures associated with the production of tax­exempt income. Personal expenditures are not deductible. Special limits are  imposed on expenditures  that have both personal  and business  benefits. Only 50 percent of business meals and entertainment are deductible.  Contemporaneous written records of business purpose are required. Domestic Production Activities Deduction A subsidy for the cost of producing  goods or certain construction services within the United States. 9 percent of qualified production activity income. Limited to overall income (AGI  for individuals) and 50 percent of wages associated with the production. There are three types of tax years, each with different year­ends: 1.A calendar year ends on December 31. 2 A fiscal year ends on the last day of a  month other than December. A 52/53 week­year ends on the same day of the week every year. In other words, a 52/53 week­year could end on the same day of the week that is  the last such day in the month or on the same day of the week nearest the end of the month. For example, a business could adopt a 52/53­week fiscal year that (1) ends on the last Saturday in July each year or (2) ends on the Saturday closest to the end of July (although this Saturday might be in  August rather than July)      Accounting Periods    1. Individuals and proprietorships account for income on a calendar year. 2. Corporations are  allowed to choose a fiscal year. 3Partnerships and other flow­through entities generally use a required year.   THE KEY FACTS  Accrual of Business­Expense Deductions   Both all­events and economic performance are required for deducting accrued business expenses. The  all­events test requires that the business be liable for the payment. Economic performance generally requires that underlying activity generating  liability has occurred in order for the associated expense to be deductible. THE KEY FACTS  Realized gain or  loss. Amount realized less adjusted basis. : Recognized gain or loss. A realized gain or loss reported on the taxpayer's current year return. THE KEY FACTS  Unrecaptured §1250 Gains Depreciable real property sold at a gain is §1250 property but is no longer subject to §1250 recapture unless it is held  12 months or less. The lesser of the (1) recognized gain or (2) accumulated depreciation on the assets is called unrecaptured §1250 gain.  Unrecaptured §1250 gain is §1231 gain that, if ultimately characterized as a long­term capital gain, is taxed at a maximum rate of 25 percent.    THE KEY FACTS  §1239 Related­Person Transactions All gain recognized from selling property that is a depreciable asset to a related buyer is  ordinary income (regardless of the character of the asset to the seller). Related persons are defined in §1239 and include  1.An individual and the  individual's controlled corporation or partnership. 2.A taxpayer and any trust in which the taxpayer (or spouse) is a beneficiary.  THE KEY FACTS  §1245 Assets Personal property and amortizable intangible assets are §1245 assets. The lesser of (1) gain recognized or (2) accumulated  depreciation is recaptured (characterized) as ordinary income under §1245. Any remaining gain is §1231 gain. There is no depreciation recapture on assets sold at a loss.


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