MGMT 127A Lecture Notes - Lecture 8: Accounts Receivable, Tax Bracket, Tax Avoidance

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8 May 2016
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1. Lecture 8: continuation of section 1
Stage 3: characterization
oDon’t worry about depreciation recapture (step 1) go straight to step 2
oStep 2: Determine the treatment of the asset
Know the type of property- only 3 types
Capital
Include all assets that are not considered ordinary or
1231
This includes all assets except inventory, A/R, artwork in
the hands of the person who created it, and real property
Ordinary
Inventory: it wouldn’t make sense to have tax incentives
to sell your inventory after a year, so it is considered ordinary, not capital
Accounts receivable: you generate A/R by selling things
like inventory
Literary and artistic works in the hands of the person
who created it: this is inventory to the artists
Section 1231
Real property (both depreciable and non depreciable)
and depreciable personal property used in the business
Depreciable personalty: things like machines,
equipment, cars, trucks
Real property: things like factories, land,
buildings
Gets treated the best
You must hold it long term to be considered 1231
property
Gets treated as ordinary if it is a net loss
Gets treated as capital if it is a net gain and thus taxed
at the maximum rate of 20%
Determine the form of disposition
Voluntary
Involuntary
Holding period
Long term: held for more than 1 year
Short term: 1 year or less
Use of the asset:
Personal
Business
Investment
oStep 3: determine the net capital or ordinary amounts
o
Net capital gain or loss Tax rate or limitation
LTCG 20%, 15%, 0%
STCG Regular tax rates
LTCL and STCL Current year: the most you can deduct is 3k
Carryback: 0 (not possible)
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