Income Taxes

The 16th Amendment to the Constitution granted authority for Congress to assess income taxes. It is promulgated via the Internal Revenue Code. In addition, state governments (42 of them) assess an income tax too. For the IRS, Form 1040 is filed to report and calculate the associated income tax for individuals.

Constructive Dividends – Definition, Understanding and Application

When a corporation confers an economic benefit upon a shareholder, in his capacity as such, without an expectation of reimbursement, that economic benefit becomes a constructive dividend, taxable as such. See INTERNAL REVENUE SERVICE NATIONAL OFFICE FIELD SERVICE ADVICE MEMORANDUM FOR DISTRICT COUNSEL, Number 200011003 dated October 27, 1999; specifically Page 4, 3rd paragraph.

Economic Substance Principle

Economic Substance Principle

The taxpayer must prove that the underlying economic transaction was not concocted to avoid or reduce tax liability. In the Gregory Vs. Helvering case, the Supreme Court actually uses the word  ‘sham’.

Using Cash in Construction

Debt or Equity

There is a notion in business that using cash to pay for materials or service is illegal. IT IS NOT ILLEGAL TO PAY FOR MATERIALS OR SERVICE WITH CASH. It is illegal to do this if you do not properly document the transaction. This is especially true in the construction industry.

Mailbox Rule in Business

Mailbox Rule

There is one tax rule that confuses business owners and it relates to the year-end practice of paying bills and receiving compensation for receivables. This is referred to as the ‘Mailbox Rule’. This is strictly a tax issue for cash basis taxpayers. I’m here to set the record straight! 

Form 1099-C: Cancellation of Debt

Form 1099-C

If you received a 1099-C, the first question you ask is: ‘Do I have to include this in my taxable income?’ Well, the answer is ‘it depends’. Not what you want to hear but there are a lot of variables involved in answering this question.

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