Monday, January 30, 2012

Capital Loss Carrybacks and Carryover

Rules for Capital Loss Carrybacks and Carryover 

Under § 1212, corporate taxpayers may carry back those capital losses for up to the three preceding taxable years to offset any net capital gains that corporation might have enjoyed in those prior years. Immediate refund can be obtained for anything a taxpayer deserves from the IRS.

For non-corporate taxpayers, there is no carryback provision. However, losses that are nondeductible because of the § 1211 limitations may be carried over to future years indefinitely. You can offset the whole amount against ordinary income because of the small business exception.  

Sunday, January 29, 2012

Unrealized Gain in Charitable Deductions

Unrealized gain in donated property is deductible only if:


  1. The gain would have been long-term capital gain had the taxpayer sold the property;
  2. In the case of a contribution of tangible personal property (not land):
    1. Use of property by charity is related to its tax-exempt purpose, AND
    2. Property is not given to a private foundation, which are a category of charities with special treatment in a number of respects including charitable property deductions.
  3. You can’t get unrealized appreciation of personal property through deduction if giving this way to a private organization. 

Thursday, January 26, 2012

Netting of Long term and Short term Capital Gains and Losses

Netting of Long term and Short term Capital Gains and Losses

These groups of capital gains are netted against one another according to the following rules in § 1221.


  1. Long-term capital gains are netted against long-term loses.
  2. Short-term capital gains are netted against short-term losses.
  3. If the results of the first two netting procedures have the same sign (that is, both are losses or both are gains for the taxpayer), then the taxpayer has that amount of each type of net gain or loss, and each is treated accordingly by the Internal Revenue Code and the Internal Revenue Service. 
    1. However, if the results of the first two netting procedures have opposite signs (that is, if one is a net gain and the other a net loss), those two outcomes are netted against each other.
    2. This final result of this netting has the character of whatever type of gain or loss “sticks out” after the netting procedures regarding capital gains are finished 

Wednesday, January 25, 2012

What are Business Entertainment Deductions?

The Definition of Business Entertainment Deductions in Tax Accounting

§ 274 of the Internal Revenue Code authorizes no deductions, it limits conditions or prohibits certain deductions that § 162 or 212 would otherwise permit.

BUSINESS ENTERTAINMENT DEDUCTIONS

§ 274(a) If an activity is “of a type generally considered to constitute entertainment, amusement, or recreation its expenses may be deducted if

  1. Activity is directly related to the taxpayer’s business OR
  2. Activity is associated with the conduct of the taxpayer’s business and it immediately precedes for follows a substantial business discussion
STANDARD: There must be a substantial and bona fide business deduction and a minimal nexus between business and the activity. This is required for a taxpayer claiming a business entertainment deduction.

Information about Deducting Cost of Commuting Expenses

What is Reasonable Compensation for the IRS?

Definition of Reasonable Compensation

§ 162(a)(1) of the Internal Revenue Code allows for “a reasonable allowance for salaries or other compensation for personal services actually rendered."

The reasonable compensation section of the tax code often comes into play because the double taxation of corporations. If the officers and executives of a corporation are substantially identical with its major shareholders, a temptation may arise to distribute some of the earnings of the corporation under the label of additional compensation for services, rather than under the dividend label to save on taxes.

The reduction in dividend tax lessens that tax advantage of compensation over dividends, but in many situations a significant tax advantage for compensation remains. There are still many  controversies between businesses and the IRS over what is considered reasonable compensation for a corporate officer.

Saturday, January 21, 2012

Business Debt Deduction

Business Debt resulting from a business activity can be deducted even if it results in a net loss from the activity. The IRS says that you can take deductions in excess of your business income through treasury regulations. Temp Treas Reg. 1163- 9T(b)(2)(i)(4)

Temp. Tres. Reg. 1.163-pT(b)(2)(i)(A) specifies that interest on income tax deficiencies is not attributable to a taxpayer’s conduct of trade or business, regardless of the source of income, but rather is “personal interest” within the meaning on § 163(h). The IRS will determine what is properly allocable when giving an audit or deciding what is an appropriate size of the deduction.

Popular Accounting Problems

The information on this site is for informational purposes only and should not be used as a substitute for the professional advice of an accountant, tax advisor, attorney, or other professional.