ACCT 421 Chapter Notes - Chapter 9: Calendar Year, Basis Of Accounting, Fiscal Year
1 Dec 2016
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Lo 9-1: describe the general requirements for deducting business expenses and identify common business deductions. Ordinary and necessary business expenses are allowed as deductions to calculate net income from activities entered into with a profit motive. Only reasonable amounts are allowed as business expense deductions. Extravagant or excessive amounts are likely to be characterized by personal motives and are disallowed. Lo 9-1: apply limitations on business deductions to distinguish between deductible and nondeductible business expenses. The law specifically prohibits deducting expenses against public policy (such as fines or bribes) and expenses that produce tax-exempt income. Expenses benefitting multiple periods must be capitalized and special limits and recordkeeping requirements are applied to business expenses that may have personal benefits, such as entertainment and meals. Lo 9-3: identify and explain special business deductions specifically permitted under tax laws. Special calculations are necessary for deductions such as bad debt expenses, the domestic production activities deductions, and casualty losses.
