Tax Amortization Benefit

Question: Is negative cash flow for investment property always bad?

I heard that it’s bad if you have an investment property with negative cash flow because the owner of the property will have to pay to have the property. However, the owner most likely put a down payment on the property, which would mean that the owner paid to have the property at that time.

Isn’t negative cash flow the same as paying a little bit of an extra down payment in installments each month? Therefore, doesn’t the loss help that person’s taxes since the majority of their mortgage is being paid by someone else tax-free?

Answer:

I understand your argument about negative cash flow. If you have negative cash flow due to repaying debt, then you can say that it’s not all that bad. … Continue Reading »

Question:

I had a sole proprietor business and it went bust. I purchased several assets that I depreciated and amortized for a few years. I have several more years to depreciate and amortize those assets for tax purposes.  Can I still depreciate and amortize those assets in the future on my taxes? I typically just file a Schedule C with my annual Form 1040 taxes.

Answer:

If you’re no longer in business and the assets were converted to personal use, you can no longer claim depreciation and amortization. Please also note that if you ever sell the assets for more than the remaining basis, it might generate taxable income for you. However, if the assets are sold for less than their adjusted basis, you can deduct the difference.

In order to claim depreciation or amortization, … Continue Reading »

Question:

For small businesses, is depreciation usually better than amortization?

Answer:

Depreciation is an accounting tool that is used to reduce the adjusted basis of tangible assets such as business equipment. A tractor is depreciated. The number of years that the asset is depreciated over depends on the class that the asset is in an can vary. It’s essentially depreciated over the useful life of the asset. For some assets, the time period is 5 years. For other assets, the time period is 7 years.

If you have a $20,000 asset with a depreciable useful life of 5 years, you claim $4,000 of depreciation each year assuming the straight-line method of depreciation is used.

Intanigble assets such as goodwill or a customer list cannot be depreciated since they theoretically have an indefinite useful life. However, … Continue Reading »

Question: Where does Amortization Expense go on the income statement?

I have a normal balance sheet in my Amortization Expense account, but I don’t know where to put it on my multi-step income statement. Should it go under selling expenses, administrative expenses, or other gains and losses? One website that I saw said that it goes right above income taxes, but that doesn’t sound right. Can you help me with this one?

Answer:

At first glance, I was going to say that it would be towards the end of the income statement. However, after checking my text book, amortization is an operating expense, just like depreciation, which would go under Operating Expenses on a multi-step income statement.

Add your own answer in the comments!… Continue Reading »