Question: Explain why a taxpayer might choose one

> Explain the similarities and dissimilarities between depreciation, amortization, and depletion. Describe the cost recovery method used for each of the four asset types (personal property, real property, intangible property, and natural resources).

> Explain the differences and similarities between personal property, real property, intangible property, and natural resources. Also, provide an example of each type of asset.

> Explain the reasoning why the tax laws require the cost of certain assets to be capitalized and recovered over time rather than immediately expensed.

> Explain why percentage depletion has been referred to as a government subsidy.

> Compare and contrast the cost and percentage depletion methods for recovering the costs of natural resources. What are the similarities and differences between the two methods?

> Compare and contrast the recovery periods of §197 intangibles, organizational expenditures, start-up costs, and research and experimentation expenses.

> Explain the amortization convention applicable to intangible assets.

> Discuss the method used to determine the amount of organizational expenditures or start-up costs that may be immediately expensed in the year a taxpayer begins business.

> Compare and contrast the similarities and differences between organizational expenditures and start-up costs for tax purposes.

> Dustin has a contract to provide services to Dado Enterprises. In November of year 0, Dustin billed Dado $10,000 for the services he rendered during the year. Dado is an accrual-method proprietorship that is owned and operated by Dustin’s father. a. Wha

> Compare and contrast the tax and financial accounting treatment of goodwill. Are taxpayers allowed to deduct amounts associated with self-created goodwill?

> What is a §197 intangible? How do taxpayers recover the costs of these intangibles? How do taxpayers recover the cost of a §197 intangible that expires (such as a covenant not to compete)?

> Compare and contrast how a Land Rover SUV and a Mercedes Benz sedan are treated under the luxury auto rules. Also include a discussion of the similarities and differences in available §179 expense.

> Discuss why Congress limits the amount of depreciation expense businesses may claim on certain automobiles.

> Are taxpayers allowed to claim depreciation expense on assets they use for both business and personal purposes? What are the tax consequences if the business use drops from above 50 percent in one year to below 50 percent in the next?

> Describe assets that are considered to be listed property. Why do you think the Internal Revenue Service requires them to be “listed”?

> Why might a business elect only the §179 expense it can deduct in the current year rather than claiming the full amount available?

> What strategies will help a business maximize its current depreciation deductions (including §179)? Why might a taxpayer choose not to maximize its current depreciation deductions?

> Compare and contrast the types of businesses that would benefit from and those that would not benefit from the §179 expense.

> Explain the two limitations placed on the §179 deduction. How are they similar? How are they different?

> This year William provided $4,200 of services to a large client on credit. Unfortunately, this client has recently encountered financial difficulties and has been unable to pay William for the services. Moreover, William does not expect to collect for hi

> Discuss why a small business might be able to deduct a greater percentage of the assets it places in service during the year than a larger business.

> Compare and contrast the differences between computing depreciation expense for tangible personal property and depreciation expense for real property under both the regular tax and alternative tax systems.

> If a taxpayer has owned a building for 10 years and decides that it should make significant improvements to the building, what is the recovery period for the improvements?

> Discuss why Congress has instructed taxpayers that real property be depreciated using the mid-month convention as opposed to the half-year or mid-quarter conventions used for tangible personal property.

> There are two recovery period classifications for real property. What reasons might Congress have to allow residential real estate a shorter recovery period than nonresidential real property?

> AAA, Inc., acquired a machine in year 1. In May of year 3, it sold the asset. Can AAA find its year 3 depreciation percentage for the machine on the MACRS table? If not, what adjustment must AAA make to its full year depreciation percentage to determine

> A business buys two identical tangible personal property assets for the same identical price. It buys one at the beginning of the year and one at the end of year. Under what conditions would the taxpayer’s depreciation on each asset be exactly the same?

> What are the two depreciation conventions that apply to tangible personal property under MACRS? Explain why Congress provides two methods.

> Compare and contrast the recovery periods used by MACRS and those used under generally accepted accounting principles (GAAP).

> Describe how you would determine the MACRS recovery period for an asset if you did not already know it.

> BCS Corporation is a calendar-year, accrual-method taxpayer. BCS was formed and started its business activities on January 1, year 0. It reported the following information for year 0. Indicate BCS’s deductible amount for year 0 in each of the following a

> Back in Boston, Steve has been busy creating and managing his new company, Teton Mountaineering (TM), which is based out of a small town in Wyoming. In the process of doing so, TM has acquired various types of assets. Below is a list of assets acquired d

> Diamond Mountain was originally thought to be one of the few places in North America to contain diamonds, so Diamond Mountain Inc. (DM) purchased the land for $1,000,000. Later, DM discovered that the only diamonds on the mountain had been planted there

> While completing undergraduate school work in information systems, Dallin Bourne and Michael Banks decided to start a business called ISys Answers which was a technology support company. During year 1, they bought the following assets and incurred the fo

> This year Amy purchased $2,000 of equipment for use in her business. However, the machine was damaged in a traffic accident while Amy was transporting the equipment to her business. Note that because Amy did not place the equipment into service during th

> Andrew is considering starting a business of constructing and selling prefabricated greenhouses. There are three very different methods to constructing these greenhouses, and each method results in different revenue and cost projections. Below, Andrew ha

> Renee manufactured and sold a “gadget,” a specialized asset used by auto manufacturers that qualifies for the domestic production activities deduction. Renee incurred $15,000 in direct expenses in the project which includes $2,000 of wages Renee paid to

> Assume Sarah is a cash-method calendar-year taxpayer, and she is considering making the following cash payments related to her business. Calculate the after-tax cost of each payment assuming she has a 25 percent marginal tax rate. a. $2,000 payment for

> Heather paid $15,000 to join a country club in order to meet potential clients. This year she paid $4,300 in greens fees when golfing with clients. Under what circumstances, if any, can Heather deduct the $15,000 cost of country club dues and the costs o

> Ryan is self-employed. This year Ryan used his personal auto for several long business trips. Ryan paid $1,500 for gasoline on these trips. His depreciation on the car if he was using it fully for business purposes would be $3,000. During the year, he dr

> Adam elects the accrual method of accounting for his business. What amount of deductions does Adam recognize in year 0 for the following transactions? a. Adam guarantees that he will refund the cost of any goods sold to a client if the goods fail within

> Travis is a professional landscaper. He provides his clients with a one-year (12-month) warranty for retaining walls he installs. In June of year 1, Travis installed a wall for an important client, Sheila. In early November, Sheila informed Travis that t

> This year (year 0) Elizabeth agreed to a three-year service contract with an engineering consulting firm to improve efficiency in her factory. The contract requires Elizabeth to pay the consulting firm $1,500 for each instance that Elizabeth requests its

> Kimberly is a self-employed taxpayer. She recently spent $1,000 for airfare to travel to Italy. What amount of the airfare is deductible in each of the following alternative scenarios? a. Her trip was entirely for personal purposes. b. On the trip, she

> Rebecca is a calendar year taxpayer who operates a business. She made the following business-related expenditures in December of year 0. Indicate the amount of these payments that she may deduct in year 0 under both the cash method of accounting and the

> Jeremy is a calendar-year taxpayer who sometimes leases his business equipment to local organizations. He recorded the following receipts this year. Indicate the extent to which these payments are taxable income to Jeremy this year if Jeremy is (1) a cas

> Nicole is a calendar-year taxpayer who accounts for her business using the cash method. On average, Nicole sends out bills for about $12,000 of her services at the first of each month. The bills are due by the end of the month, and typically 70 percent o

> In July of this year Stephen started a proprietorship called ECR (which stands for electric car repair). ECR uses the cash method of accounting and Stephen has produced the following financial information for this year. Fill out a draft of the front page

> What is the difference between a full tax year and a short tax year? Describe circumstances in which a business may have a short tax year.

> How do casualty loss deductions differ when a business asset is completely destroyed as opposed to the destruction of a personal-use asset?

> Explain the difference between calculating a loss deduction for a business asset that was partially damaged in an accident and a loss deduction for a business asset that was stolen or completely destroyed in an accident.

> Describe the limits placed on the domestic production activities deduction and explain the apparent reason for each limitation.

> Describe the calculation of the domestic production activities deduction.

> Explain why the domestic production activities deduction is sometimes described as an “artificial” expense and the apparent rationale for this deduction. How might a business begin to determine the domestic portion of revenues and expenses for products t

> In very general terms, how is the alternative minimum tax system different from the regular income tax system? How is it similar?

> Clyde lives and operates a sole proprietorship in Dallas, Texas. This year Clyde found it necessary to travel to Fort Worth (about 25 miles away) for legitimate business reasons. Is Clyde’s trip likely to qualify as “away from home,” and why would this d

> What expenses are deductible when a taxpayer combines both business and personal activities on a trip? How do the rules for international travel differ from the rules for domestic travel?

> Jenny uses her car for both business and personal purposes. She purchased the auto this year and drove 11,000 miles on business trips and 9,000 miles for personal transportation. Describe how Jenny will determine the amount of deductible expenses associa

> Tim employs three sales representatives who often take clients to dinner and provide entertainment in order to increase sales. This year Tim reimbursed the representatives $2,500 for the cost of meals and $8,250 for the cost of entertaining clients. Desc

> Jimmy is a sole proprietor of a small dry-cleaning business. This month Jimmy paid for his groceries by writing checks from the checking account dedicated to the dry-cleaning business. Why do you suppose Jimmy is using his business checking account rathe

> Jerry is a self-employed rock star and this year he expended $1,000 on special “flashy” clothes and outfits. Jerry would like to deduct the cost of these clothes as work-related because the clothes are not acceptable to Jerry’s sense of fashion. Under wh

> Provide an example of an expense associated with the production of tax-exempt income, and explain what might happen if Congress repealed the prohibition against deducting expenses incurred to produce tax-exempt income.

> What kinds of deductions are prohibited as a matter of public policy? Why might Congress deem it important to disallow deductions for expenditures against public policy?

> Jake is a professional dog trainer who purchases and trains dogs for use by law enforcement agencies. Last year Jake purchased 500 bags of dog food from a large pet food company at an average cost of $30 per bag. This year, however, Jake purchased 500 ba

> Tom is an attorney who often represents individuals injured while working (worker liability claims). This year -Tom spent $50 on a book entitled Plumbing For Dummies and paid $500 to take a course on plumbing residences and rental housing. Can you imagin

> Lauren is 17 years old. She reports earned income of $3,000 and unearned income of $2,200. Is she likely subject to the kiddie tax? Explain.

> Is cost of goods sold deductible as a business expense for a business selling inventory? Explain.

> What is an “ordinary and necessary” business expenditure?

> What is a §481 adjustment and what is its purpose?

> What are the relative advantages of the cash and accrual methods of accounting?

> Describe the related-party limitation on accrued deductions. What tax savings strategy is this limitation designed to thwart?

> Compare and contrast how bad debt expense is determined for financial accounting purposes and how the deduction for bad debts is determined for accrual-method taxpayers. How do cash-method taxpayer’s determine their bad debt expense for accounts receivab

> On December 31 of the current year, a taxpayer prepays an advertising company to provide advertising services for the next 10 months. Using the 12-month rule and the economic performance rules, contrast when the taxpayer would be able to deduct the expen

> Describe when economic performance occurs for the following expenses: Worker’s compensation, Rebates and refunds Insurance, warranties, and service contracts provided to the business Taxes

> Compare and contrast when taxpayers are allowed to deduct amounts for warranties provided by others to the taxpayer and when taxpayers are allowed to deduct expenses associated with warranties they provide to others.

> Compare and contrast the tests for accruing income and those for accruing deductions for tax purposes.

> What is the kiddie tax and on whose tax return is the kiddie tax liability reported? Explain.

> Compare and contrast financial accounting rules with the tax rules under UNICAP (§263A). Explain whether the UNICAP rules tend to accelerate or defer income relative to the financial accounting rules.

> Jack operates a plumbing business as a sole proprietorship on the cash method. Besides providing plumbing services, Jack also sells plumbing supplies to homeowners and other plumbers. The sales of plumbing supplies constitute less than $20,000 per year,

> Compare and contrast the rules for determining the tax treatment of advance payments for services versus advance payments for goods.

> Compare and contrast the tax treatment for rental income received in advance and advance payments for services.

> Describe the all-events test for determining income and describe how to determine the date on which the all-events test has been met.

> Why is it not surprising that specific rules differ between tax accounting and financial accounting?

> Explain why Congress sometimes mandates that businesses use particular accounting methods while other times Congress is content to require businesses to use the same accounting methods for tax purposes that they use for financial accounting purposes.

> Describe the 12-month rule for determining whether and to what extent businesses should capitalize or immediately deduct prepaid expenses such as insurance or security contracts. Explain the apparent rationale for this rule.

> Explain when an expenditure should be “capitalized” rather than expensed based upon accounting principles. From time to time, it is suggested that all business expenditures should be expensed for tax purposes. Do you agree with this proposition, and if s

> How does an entity choose its tax year? Is it the same process no matter the type of tax year-end the taxpayer adopts?

> Does the kiddie tax apply to all children no matter their age? Explain.

> Why does the law generally require partnerships to adopt a tax year consistent with the year used by the partners?

> Jack, a geologist, had been debating for years whether or not to venture out on his own and operate his own business. He had developed a lot of solid relationships with clients and he believed that many of them would follow him if he were to leave his cu

> Joe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the accrual method of accounting but he doesn’t keep any significant inventories of the specialized assets that he sells. Joe reported the

> R.E.M., a calendar-year corporation and Athens, Georgia band, recently sold tickets ($20,000,000) for concerts scheduled in the United States for next year and the following year. For financial statement purposes, R.E.M. will recognize the income from th

> Hank started a new business in June of last year, Hank’s Donut World (HW for short). He has requested your advice on the following specific tax matters associated with HW’s first year of operations. Hank has estimated

> Bryan followed in his father’s footsteps and entered into the carpet business. He owns and operates I Do Carpet (IDC). Bryan prefers to install carpet only, but in order to earn additional revenue, he also cleans carpets and sells carpe

> Rex loves to work with his hands and is very good at making small figurines. Rex opened Bronze Age Miniatures (BAM) for business several years ago as a sole proprietorship. BAM produces miniature characters ranging from sci-fi characters (his favorite) t

> Steve’s tentative minimum tax (TMT) for 2016 is $15,000. What is his AMT if a. His regular tax is $10,000? b. His regular tax is $20,000?

> In 2016, Juanita is married and files a joint tax return with her husband. What is her tentative minimum tax in each of the following alternative circumstances? a. Her AMT base is $100,000, all ordinary income. b. Her AMT base is $250,000, all ordinary i

> Corbett’s AMTI is $130,000. What is his AMT exemption under the following alternative circumstances? a. He is married and files a joint return. b. He is married and files a separate return. c. His filing status is single. d. His filing status is head o

> Does the kiddie tax eliminate the tax benefits gained by a family when parents transfer income-producing assets to children? Explain.