A common year-end tax planning step is to pay for certain expenses prior to December 31, rather than incur them after December 31. This can give you the tax benefit of a deduction a year earlier than if you had waited until January 1 or later to pay the expense. An example of this is…
The rules for calculating depreciation (annual write-offs) for buildings, furniture, and other assets were called the Accelerated Cost Recovery System (ACRS). The depreciation system after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). Depreciation write-offs are technically called recovery deductions under these rules. The basic approach to calculating depreciation under these rules is…
The tax laws provide sets of rules for determining when you can claim a deduction and when you must report income. There are two major sets of rules. The simplest, which is used by individuals, is called the cash method of accounting. Under the cash method of accounting, you generally report income for tax purposes…
A penalty tax charged against a corporation that retains an excessive amount of profits beyond the reasonable needs of its business, rather than distributing those profits to its owners. An LLC that is taxed as a partnership will not face this problem.
When buying a business or property, many costs can be incurred that have to be added to (capitalized as part of) your cost (adjusted basis) in the property. For example, the cost of a title insurance report, legal fees, transfer taxes, accounting fees, and so forth may all have to be added to your cost…
See Passive Loss Rules.
Investors sufficiently involved with their rental property to meet this test, and have income (See Modified Adjusted Gross Income) less than $150,000 can deduct some or all of the tax losses, up to $25,000, from their rental property against any income including wages (active income) and dividends and interest (portfolio income). The amount of this…
Roughly speaking, your investment (for tax purposes) in certain property (the cost you pay to buy or build a building [or any other asset], plus costs to improve it). If you have a casualty loss, it reduces your adjusted basis. Adjusted basis is used to calculate depreciation (multiply it by the appropriate depreciation or ACRS…
All your income from whatever source (wages, rents, dividends, profits from a business, and so forth) less certain deductions (trade or business expenses, depreciation on rental property, allowable losses from sales of property, alimony payments, and so forth). It is sometimes called AGI. Adjusted gross income is important for calculating the amount of medical expenses…
The purchase price for a business or a rental property must be allocated between different assets acquired, such as intangible rights (customer lists, etc.), land, building, furniture and fixtures, equipment, inventory, etc., in order to determine your depreciation deductions. See Acquisition Costs.