Contractor's Year-Round Tax
Guide Revised
Table of Contents

2. Capital Assets, 7
    Modified Accelerated Cost Recovery, 18
    Personal Property Depreciation, 18
    Real Estate Depreciation, 19
    Expensing Assets, 20
    Capital Asset Tax Benefits, 21

3. The Ordinary and Necessary Rule, 23
    Deciding to Capitalize Expenses, 24
    Expenses Not Allowed, 24
    High-Visibility Categories, 25

4. Compensation, 29
    Reasonable Payments, 29
    Dividends, 30
    Salaries and Wages, 30
    Bonuses, 31
    Stock Options, 32
    Consulting Fees, 32
    Contracts with Employees and Consultants, 35

5. Profit Sharing and Pension Plans, 39
    Why Have a Plan? 39
    Qualified Pension and Profit-Sharing Plans, 40
    Other Retirement Plan Options, 41
    Social Security Retirement, 42

6. Tax Shelters, 45
    At-Risk Limits, 46
    Real Estate Investments, 46
    Consider the Tax Consequences, 47
    Expectation of Profit, 47
    Tax Shelter Checklist, 48

7. Real Estate Transaction, 49
    Tax Advantages, 49
    Buying and Selling Property, 51
    Who Should Own the Property? 52
    Real Estate Income, 55
    Deductions, 55
    Record Keeping, 57
    Real Estate As a Tax Shelter, 58

8. Write-Offs, 59
    Bad Debts, 59
    Casualty Losses and Theft, 61
    Abnormal Obsolescence and Abandonment, 62
    Inventory Write-offs, 63
    Involuntary Conversions, 64
    Intangible Asset Write-Offs, 64
    Organizational Costs, 65

9. Accounting Methods, 67
    Cash Accounting, 67
    Accrual Accounting, 68
    Completed-Contract vs. Percentage-of- Completion Rules, 69
    Cash or Accrual Accounting: Other Considerations, 71
    The Importance of Record Keeping, 73

10. Documenting Tax Deductions, 75
    The Need to Document, 75
    The Burden of Proof, 76
    Travel and Entertainment, 77
    Documenting Other Expenses, 80
    Proper Documentation, 85
    Subsidiary Accounts, 85
    Tax Return Support, 86
    Record Retention Rules, 86

11. Taxes and Cash Accounting, 89
    Cash: A Tax Control Account, 89
    Statement of Cash Flows, 90
    Reducing Expenses, 91
    Multiple Accounts, 92
    Specialized Accounts, 93
    Petty Cash Account, 93

12. Investing Fundamentals, 95
    Compound Interest, 95
    Income Taxes and Inflation, 96
    Dividends and Capital Gains, 97
    Types of Investments, 98
    Finding Investment Advice, 102
    Investment Objectives, 103

13. Buying and Leasing Equipment, 107
    Advantages of Leasing, 107
    The Option to Buy, 108
    Rental Deductions, 108
    Other Tax Aspects of Leasing, 109

16. Death of Partner or Stockholders, 119
    Comparison Between Organizations, 119
    Buy-Out Agreements, 121
    Consequences of Liquidation, 122

17. Taxpayers' Elections, 125
    Extending Filing Deadlines, 125
    Amending Tax Returns, 126
    Form of Organization, 126
    Accounting Methods, 127
    Fiscal Year, 127
    Depreciation Methods, 127
    Auto Mileage, 127
    Contributions, 128
    Deferrals, 128
    Expensing, 128
    Inventory Valuation Methods, 128
    Retirement Plans, 129
    Capital Gains and Losses, 130

18. Tax Planning, 131
    Tax Avoidance vs. Tax Evasion, 132
    Sound Business Purpose, 132
    Tax Avoidance Plans, 133
    Interim Statements, 134

19. Filling Tax Returns, 135
    Corporate Tax Return 135
    S Corporation Tax Return, 136
    Partnership Tax Return, 137
    Individual Taxation and Schedule C, 138
    Supporting Schedules, 139 / Schedule E, 140

20. Getting Professional Advice, 143
    Preparing for the Tax Return, 144
    Tax Professionals, 146
    Special Situations, 146
    Periodic Meetings, 147

21. Tax Records You Need, 149
    Cash Controls, 149
    Accounts Receivable Controls, 150
    Inventory Controls, 151
    Capital Asset Controls, I51
    Accounts Payable Controls, 151
    Notes Payable Controls, 151
    Other Controls, 153

22. Changing Your Tax Year, 155
    The Natural Business Year, 155
    Changing Tax Years, 157
    Taxes in a Short Year, 158
    Ending-Day Methods, 158
    Monthly Accounting Alternatives, 159
    Fiscal Years and Personal Cash Flow, 159
    Tax-Year Selection Strategies, 159

23. The Profit Motive, 161
    The Business Purpose, 161
    Examples of Intent, 162

25. Taxable Income, 171
    Damages Received Through Legal Action, 172
    Other Special Situations, 173

26. Nontaxable Income, 175
    Tax-Free Exchanges, 176

28. Inventories, 183
    Recording Inventory, 183
    Inventory Valuation Methods, 185
    What You Can't Do, 187
    Writing Off Inventory, 187

29.
    Benefits, 189
    Common Flows, 190
    Basic Rules for Coding, 191
    Mid-Year Changes, 192
    Timing of Corrections, 192
    Tax Considerations, 193
    Budgeting Time for Account Analysis, 194
    Identifying and Solving Coding Problems, 194