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Found of Taxation
Chapter 7: Property Acquisitions and Cost Recovery Deductions
| Term | Definition |
|---|---|
| capitalization | an accounting requirement that an expenditure be charged to a balance sheet account rather than against the firm’s current income |
| research and experimental expenditures | a preferential deduction for costs of basic research designed to encourage businesses to conduct such research |
| intangible drilling and development costs (IDCs) | expenses such as wages, fuel, repairs to drilling equipment, hauling, and supplies associated with locating and preparing oil and gas wells for production. IDCs are deductible for federal tax purposes |
| tax basis | a taxpayer’s investment in any asset or property right and the measure of unrecovered dollars represented by the asset |
| adjusted basis | the initial tax basis of an asset reduced by cost recovery deductions allowable with respect to the basis |
| cost basis | the purchase price of an asset, including any sales tax paid by the purchaser and any incidental costs related to getting the asset in place and into production |
| levarage | the use of borrowed funds to create a tax basis. |
| cost of goods sold | the capitalized cost of inventory sold during the taxable year and subtracted from gross receipts in the computation of gross income |
| uniform capitalization (UNICAP) rules | the set of tax rules governing the type of current expenditures that must be capitalized to inventory |
| specific identification method | an accounting method under which cost of goods sold includes the actual cost of specific items of inventory sold during the year |
| FIFO (first in, first out) | the inventory costing convention under which the first goods manufactured or purchased are assumed to be the first goods sold |
| LIFO (Last in, last out) | the inventory costing convention under which the last goods manufactured or purchased are assumed to be the first goods sold |
| depreciation | the systematic deduction of the capitalized cost of tangible property over a specific period of time |
| Modified Accelerated Cost Recovery System (MACRS) | the statutory and regulatory rules governing the computation of depreciation for tax purposes |
| recovery periods | the number of years prescribed by statute over which the basis of tangible business property is depreciated under MACRS |
| qualified improvement property | certain nonstructural improvement to the interior of nonresidential real property, qualifying for a 15-year recovery life and the Section 179 election |
| half-year convention | property placed in service on any day of the taxable year is treated as placed in service halfway through the year for MACRS purposes |
| mid-quarter convention | property placed in service on any day of a quarter is treated as placed in service at the midpoint of the quarter for MACRS purposes |
| mid-month convention | property placed in service on any day of a month is treated as placed in service at the midpoint of the month for MACRS purposes |
| passenger automobiles | four-wheeled vehicles manufactured primarily for use on public roads with an unloaded gross vehicle weight of 6,000 pounds or less |
| section 179 election | the election under which firms can expense a limited dollar amount of the cost of tangible personalty placed in service during the taxable year |
| bonus depreciation | accelerated deduction in the year placed in service of 50 percent or 100 percent of the cost of qualified tangible personal property |
| amortization | the ratable deduction of the capitalized cost of an intangible asset over its determinable life |
| organizational costs | expenditures incurred in connection with the formation of a partnership or corporate entity |
| start-up expenditures | up-front costs of investigating the creation or purchase of a business and the routine expenses incurred during the pre-operating phase of a business |
| expansion costs | costs of enlarging the scope of operations of an existing business |
| leasehold costs | up-front costs incurred to acquire a lease on tangible business property |
| leasehold improvements | physical improvements made by a lessee to leased real property |
| goodwill | value created by the expectancy that customers will continue to patronize a business |
| going-concern value | value attributable to the synergism of business assets working in coordination |
| cost depletion | the method for recovering the capitalized cost of an exhaustible natural resource. |
| cost depletion | equals unrecovered basis in the resource (mine or well) multiplied by the ratio of units of production sold during the year to the estimated total units of production at the beginning of the year |
| percentage depletion | an annual deduction based on the gross income generated by a depletable property multiplied by a statutory depletion rate |
Created by:
ryanriggs18
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