Free Essay with the Summary on Chapter 6 - Deductions and Losses: In General

Published: 2022-04-08
Free Essay with the Summary on Chapter 6 - Deductions and Losses: In General
Type of paper:  Essay
Categories:  Tax system
Pages: 3
Wordcount: 577 words
5 min read
143 views

"Deductions and Losses: In General" is a chapter that talks more about how deductions and losses occur as a result of tax incidence. There is a tax law that defines that income is a recognizable source which is part of the gross profit. In some instances, tax law may require that income is deducted from the total pay according to the approach of deductions. The authors continue to argue that deductions for AGI may be limited to the tax law which requires that unless expenses are medical, personal or employee no deduction is allowed.

Trust banner

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Deductions are also classified into two principal components which require that it must determine whether an item is deductible or not and if yes, then is it classified for AGI or from AGI. The second component determines whether an item relates to the expenditure of a particular activity or not. If yes, then a deduction is realized, and investments, income, and personal activities are determined.

The deduction criteria entails that all expenses rated under $162 and $212 should either be necessary or ordinary for them to be deductible. Also, for compensation of these items to be deductible, there should be a reasonable amount which supports the procedure. In most corporations around the world, there is no specific generalization on the separation of management and ownership.

Therefore, any transactions which are undertaken by shareholders and the company are useful in the determination of whether they are deductible or not. For instance, if the salaries obtained are large and have been accepted by the court, then tax deductions can be carried out upon them. There are also tax deductions for personal expenses which may include medical, personal casualty, local and state taxes, personal interests and legal fees.

Taxable income is determined through a taxpayer's accounting method which also allows for the determination of whether an item is deductible or it can be included in the income. The record keeping techniques of a taxpayer are also used for their income tax purposes. Hence, it is essential for the method used for accounting to reflect on the consistency of income and all transactions undertaken. Also, a taxpayer may use both the accrual and cash method if they own multiple businesses.

Taxpayers who use the paid method are likely to obtain their deduction annually while those that use the incurred method usually obtain their deductions at the liability of their expenses. On the other hand, costs of the taxpayers who pay in cash are rendered deductible. The rest who do not promise to pay is not qualified for deductions, and hence they can opt to pay their expenses with money that has been borrowed.

In conclusion, the accrual method requirements allow taxpayers to deduct their expenses only if all of their transactions have been confirmed using both the events and economic performance test. Hence, a deduction in this case only occurs if only the events have been claimed to be liable and to have occurred. Additionally, the authors argue that time value and tax deductions work together to determine if money or tax rate changes affect the payment or deduction of a particular expense.

For instance, taxpayers who use cash basis are always allowed or rather have the chance to pay their expenses either at the end of the year or in the following one. Therefore, tax deductions are only allowed to an expense if it is paid on a cash basis or paid using money that has been borrowed.

Cite this page

Free Essay with the Summary on Chapter 6 - Deductions and Losses: In General. (2022, Apr 08). Retrieved from https://speedypaper.com/essays/deductions-and-losses-in-general

Request Removal

If you are the original author of this essay and no longer wish to have it published on the SpeedyPaper website, please click below to request its removal:

Liked this essay sample but need an original one?

Hire a professional with VAST experience!

24/7 online support

NO plagiarism