Carrying on trade and business
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Taxpayers claim the maximum depreciation allowed order to claim the depreciation as a tax deduction for their business. “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty” (Proverbs 21:5 ESV). Merriam Webster defines, “Depreciation, to deduct from taxable income a portion of the original cost of a business asset over several years as the value of the asset decreases.” Depreciation is usually classified as an ordinary and necessary expense for a business. IRC 162 authorizes that, “there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on trade or business” (26 U.S. Code § 162 A). “One of the primary provisions that allows taxpayers to accelerate tax benefits related to capital investments is immediate expensing under Section 179. Under these rules, taxpayers are allowed to expense the cost of qualifying property up to a dollar limit set by Congress” (Rupert, 2017). “To depreciate an asset, a business must determine original basis, depreciation method, recovery period, and depreciation convention” (Spilker, 2018). To depreciate an asset depends on how the asset is classified, either as personal property or real property. “Do not be anxious about anything, but in every situation, by prayer and petition, with thanksgiving, present your requests to God” (Philippians 4:6 NIV). Personal property contains all tangible property used for the business for instance “computers, automobiles, furniture, machinery, equipment” (Spilker,2018). Real property contains all buildings and land used for the business. It is important to properly classify the asset in order to correctly determine the depreciation amounts a business can deduct. Classifying an asset as either personal property or real property is vital in maximizing the depreciation of each asset. Real property assets should include land and buildings. Land is not depreciable. Real property classifies a building as either residential rental property or nonresidential property for depreciation purposes. Real property uses the straight-line method for depreciation for the recovery of the buildings. Residential rental property depreciates over 27.5 years and nonresidential property depreciates over 39 years. If either the residential rental or nonresidential property has an overall of major building improvements the real property would be classified as a new asset and the clock of depreciation would restart. Personal property known as tangible personal property includes assets that are linked with the real property and delivery, light purpose vehicles used for the business. Tangible personal property asset recovery periods are much shorter than real property assets. The most common recovery periods for furniture, equipment and fixtures are depreciated over 7 years. Delivery and light purpose trucks are depreciated over 5 years. The Modified Accelerated Cost Recovery System (MARCRS) provides three acceptable methods for depreciating tangible personal property: 200 percent (double) declining method, 150 percent declining method, and straight-line method” (Spilker, 2018). The default depreciation method for tangible personal property assets is the 200 percent double declining. Classifying an asset properly is clearly worth the effort in being able to maximize the businesses tax deductions on depreciation. “And whatever you do, whether in word or deed, do it all in the name of the Lord Jesus, giving thanks to God the Father through him” (Colossians 3:17 NIV).
Reference List
Spilker, B., Ayers, B., Robinson, J., Outslay, E., Worsham, R., Barrick, J., & Weaver, C. (2018).
Taxation of Individuals and Business Entities – Custom (9th ed.). New York, NY:
McGraw-Hill.
Rupert, T. (2017, September-October). Tax depreciation benefits related to realty: An update on recent changes. Journal of Property Management, 82(5), 14+. Retrieved from http://link.galegroup.com.ezproxy.liberty.edu/apps/doc/A507966183/ITOF?u=vic_liberty&sid=ITOF&xid=a1c287a2
26 U.S. Code § 162 A
Williams_Katherine_ACCT_401-D01 (1).docx (7.998 KB)
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3 days ago
Joshua Turner
RE: Question 5
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The Bible very clearly tells us that we should give to Caesar what is Caesar’s and to God what is His. Our government developed a tax code that we as citizens are supposed to follow. The adjustments, deductions and credits are not violations for taxes due to the government because they are written into the current tax law. We might have to pay someone in order to help us find all of our deductions, but that is not against any law in the current tax law. This is why businesses like H&R Block and Jackson-Hewitt tax services have developed. Paying the government the minimal amount allowed is perfectly acceptable as long as the tax law allows it. When people try and take deductions, adjustments, and credits that are not allowed they are breaking the law and they should be fined and possibly put into jail depending on the nature of the crime. Taking deductions for dependents is a good example of following the current tax law. In Titus 3:1-2 the Bible says, “Remind your people to obey the government and its officers, and always to be obedient and ready for any honest work. They must not speak evil of anyone, nor quarrel, but be gentle and truly courteous to all.” (Chery) If we try and claim dependents that are not rightfully ours we are cheating the government out of its rightful taxes and this is a punishable offense. Bloomberg Businessweek wrote an article about Richard Nixon in which it said, “Richard Nixon went on record saying, “Make sure you pay your taxes”…in his second term, Congress looked into his filings amid suspicious raised about his deductions…the inquiry concluded he owed almost half a million dollars.” (Drucker) Even the leaders of our country commit types of tax fraud that is not easily uncovered until further investigation is required. The IRS will look into tax returns, but in most cases it takes a considerable amount of time before false filings will be found. When filing taxes we must be aware of the ever changing tax laws and make sure that each year we are aware of any changes to the tax law. If we choose to file our taxes without a tax service we must make sure that we are aware of the tax law because we are liable for anything that is filed incorrectly. If we choose to file through a tax agency they are taking on the responsibility of ensuring that your taxes are filed correctly. We should strive to be completely honest and open when filing taxes especially when seeking out deductions and credits. Trying to save money is totally acceptable, but we should make sure that we are doing so while following the law. The tax code is so long and confusing that the best option would be to hire an outside tax assistant in order to maximize your deduction without having the fear of misfiling due to a human error. In the grand scheme of things as long as we are following current tax law we have nothing to worry about.
References:
Chery, F. (2017, March 04). 15 Important Bible Verses About Paying taxes. Retrieved November 27, 2017, from http://www.biblereasons.com/paying-taxes/
Drucker, J. (2016, October 06). The Smart Person’s Guide to Paying Taxes. Retrieved November 27, 2017, from http://www.bloomberg.com/news/articles/2016-10-06/the-smart-person-s-guide-to-paying-taxes
