BOOK 2 TAX

			Acc. 433, Fall, 2002
Book to Tax Calculation
Example	1			Example	2			Example	3
	Books	Adj.	Tax		Books	Adj.	Tax		Books	Adj.	Tax
Sales	45,000		45,000	Sales	45,000		45,000	Sales	45,000		45,000
CGS	(15,000)		(15,000)	CGS	(15,000)		(15,000)	CGS	(15,000)		(15,000)
Dividend			0	Dividend			0	Dividend			0
Life Ins.			0	Life Ins.	30,000	(30,000)	0	Life Ins.	30,000	(30,000)	0
Exp.	(6,000)		(6,000)	Exp.	(6,000)		(6,000)	Exp.	(6,000)		(6,000)
Fines			0	Fines			0	Fines			0
Charity			0	Charity			0	Charity			0
Deprec'n			0	Deprec'n			0	Deprec'n	(8,000)	(2,000)	(10,000)
Meals			0	Meals			0	Meals			0
	----	----	----		----	----	----		----	----	----
net income	24,000	0	24,000		54,000	(30,000)	24,000		46,000	(32,000)	14,000
	====	====	====		====	====	====		====	====	====
Is Cost of Goods Sold = for books and tax?								Why the difference in depreciation? Is this permanent or timing?


Example	4			Example	5			Example	6
	Books	Adj.	Tax		Books	Adj.	Tax		Books	Adj.	Tax
Sales	45,000		45,000	Sales	45,000		45,000	Sales	45,000		45,000
CGS	(15,000)		(15,000)	CGS	(15,000)		(15,000)	CGS	(15,000)		(15,000)
Dividend	10,000	(7,000)	3,000	Dividend	10,000	(5,600)	4,400	Dividend	10,000	(7,000)	3,000
Life Ins.	30,000	(30,000)	0	Life Ins.	30,000	(30,000)	0	Life Ins.	30,000	(30,000)	0
Exp.	(6,000)		(6,000)	Exp.	(22,000)		(22,000)	Exp.	(25,000)		(25,000)
Fines			0	Fines			0	Fines			0
Charity			0	Charity			0	Charity			0
Deprec'n	(8,000)	(2,000)	(10,000)	Deprec'n	(8,000)	(2,000)	(10,000)	Deprec'n	(8,000)	(2,000)	(10,000)
Meals			0	Meals			0	Meals			0
	----	----	----		----	----	----		----	----	----
net/taxable	56,000	(39,000)	17,000		40,000	(37,600)	2,400		37,000	(39,000)	(2,000)
	====	====	====		====	====	====		====	====	====
Div.	10,000		24,000	Div.	10,000		8,000	Div.	10,000		5,000
70%	7,000		16,800	70%	7,000		5,600	70%	7,000		3,500
Note: Sch. M-1 is before dividends received deduction								Why not the lower amount as in 5? What happens to the NOL?

Example	7			Example	8			Notes:
	Books	Adj.	Tax		Books	Adj.	Tax
Sales	45,000		45,000	Sales	45,000		45,000
CGS	(15,000)		(15,000)	CGS	(15,000)		(15,000)
Dividend			0	Dividend			0
Life Ins.	30,000	(30,000)	0	Life Ins.	30,000	(30,000)	0
Exp.	(10,000)		(10,000)	Exp.	(10,000)		(10,000)
Fines	(1,000)	1,000	0	Bad Debt	(1,000)	300	(700)
Charity	(1,000)	150	(850)	Charity	(1,000)	220	(780)
Deprec'n	(8,000)	(2,000)	(10,000)	Deprec'n	(8,000)	(2,000)	(10,000)
Meals	(3,000)	1,500	(1,500)	Meals	(3,000)	1,500	(1,500)
Fed. Tax	(4,718)	4,718	0	Fed. Tax	(4,718)	4,718	0
	----	----	----		----	----	----
	32,282	(24,632)	7,650		32,282	(25,262)	7,020
	====	====	====		====	====	====
Inc. Before Charity			8,500	Inc. Before Charity			7,800
10%			10%	10%			10%
			----				----
Charity			850	Charity			780
			====				====
What is the actual Federal Tax?				Why the difference in bad debts?
Is it:	1,148	or	2,678	Is it a permanent difference?
Why the difference and why is the book number wrong?				Does Sch. M-1 show whether a difference is permanent or timing?

Last Updated on 8/15/02
By RBM

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