deduction

Examples of deduction in the following topics:

• Tax Deductions

  • A tax deduction is a reduction of the amount of income subject to tax.
  • What is the after-tax cost of a $1,000 of deductible expense?
  • A tax deduction is a sum that can be removed from tax calculations.
  • Often these deductions are subject to limitations or conditions.
  • While a deduction is a reduction of the level of taxable income, a tax credit is a sum deducted from the total amount of tax owed.

• Elective Expensing

  • . § 179) allows a taxpayer to elect to deduct the cost of certain types of property on their income taxes as an expense, rather than requiring the cost of the property to be capitalized and depreciated.
  • Buildings were not eligible for section 179 deductions prior to the passage of the Small Business Jobs Act of 2010; however, qualified real property may now be deducted.
  • Depreciable property that is not eligible for a section 179 deduction is still deductible over a number of years through MACRS depreciation according to sections 167 and 168.
  • If, for example, the taxpayer's net trade or business income from active conduct of trade or business was 72,500 dollars in 2006, then the deduction cannot exceed 72,500 dollars that year.
  • However, any deduction not allowed in a given year under this limitation can be carried over to the next year.

• Tax Considerations

  • Under a classical tax system, the tax deductibility of interest makes debt financing valuable; that is, the cost of capital decreases as the proportion of debt in the capital structure increases.
  • In general, since dividend payments are not tax deductible, but interest payments are, one would think that, theoretically, higher corporate tax rates would call for an increase in usage of debt to finance capital, relative to usage of equity issuance.
  • There are also different kinds of debt that can be used, and they may have different deductibility and tax implications.

• Inventory Techniques

  • The Current Goods Available for Sale is deducted by the amount of goods sold, and the Cost of Current Inventory is deducted by the amount of goods sold times the latest (before this sale) Current Cost per Unit on Goods.
  • This deducted amount is added to Cost of Goods Sold.

• Managing Disbursements

  • It should then structure as high a deductible as is affordable.
  • A company should avoid duplication and excessive insurance and shift certain costs, such as health insurance, to the employee through higher payroll deductions.

• Corporate Taxes

  • The S corporation is a hybrid entity wherein the income, deductions and tax credits of the business are taxed at the shareholder level as opposed to the entity level.
  • In the United States, taxable income for a corporation is defined as all gross income (sales plus other income minus cost of goods sold and tax exempt income) less allowable tax deductions and tax credits.
  • States charge rates ranging from 0% to 10%, deductible in computing federal taxable income.
  • Some cities charge rates up to 9%, also deductible in computing Federal taxable income.

• Defining the Income Statement

  • It then calculates operating expenses and, when deducted from the gross profit, yields income from operations.
  • The final step is to deduct taxes, which finally produces the net income for the period measured.

• Managing Float

  • The term float is used in finance and economics to represent duplicate money present in the banking system during the time between when a deposit is made in the recipient's account and when the money is deducted from the sender's account.
  • Float is most apparent in the time delay between a check being written and the funds to cover that check being deducted from the payer's account.

• Pros and Cons of a Corporation

  • S corporations are merely corporations that elect to pass corporate income, losses, deductions, and credit through to their shareholders for federal tax purposes.
  • As with partnerships, the income, deductions, and tax credits of an S corporation flow through to shareholders annually, regardless of whether distributions are made.

• Leverage Models

  • By relaxing the assumption of no taxes, Modigliani-Miller tells us that there are advantages for firms to be levered, since a company's interest payments are tax-deductible.
  • We discount the amount of preferred dividends payed by the tax deductions brought about by those dividends and subtract the result and the cost of interest on debt from EBIT.