Question

Task 3:

Amur started his own business in 2015. For the Accounting year ended 31/3/2020, he prepared Profit and Loss Account for his business. He had other incomes such as rental income, interest income, dividend income and profit on sale of fixed asset. He included all these incomes in his Profit and Loss Account. Also, he has deducted various expenses while calculating Net Profit in the Profit and loss Account. He is not sure how to calculate the adjusted trading profit for the purposes of taxation.

Question:

As you are dealing taxation issues in his office, prepare a report explaining clearly the various expenses, which are deductible, and which are not deductible and the treatment of various other incomes included in the Profit and loss account, while calculating the adjusted trading profit for tax purposes.

Answer 1

Business income does not include :

1.Rental income(owned for non-business purposes)

2.Dividend income

3.Interest income(if its on investments personally made and not for business purposes)

4.Profit on sale of personal asset

Business income includes :

1.Rental income if such asset is in nature that is used by business for the business purposes

2.Dividend income if such income is from investments made by business (not personal)

3.Profit on sale of business assets (fixed asset or current assets)

Business expenses deductible from taxation are as follows:

• Charitable contribution deduction. ...
• Home interest deduction.
• Medical expense deduction.
• State and local tax deduction.
• Alimony.
• Educator expenses.
• Health savings account contributions.
• IRA contributions.