Answer to question 13

When any one sell an any asset,such incident may create income tax liability if that person earn a profit. The Internal Revenue Service makes a distinction between recognized gains and realized gains. While a recognized gain may create a tax liability, the realized gain often determines the amount of tax you must pay. let us understand what is mean by recognized gain or loss and a realized gain or loss

Realized gain : A realized gain is the excess of the amount realized on a sale or exchange over the basis of the property sold or exchanged.

Recognized Gain :The recognized gain is the amount of this realized gain that will be treated as income and subject to tax on the seller’s income tax return.

Answer to question 14

It is very important to choose financial year for the company. it is very critical job to decide the financil year either calender year or fiscal year

Calender year is the year starting from 1 st january to end on 31 december

Fiscal year is a 12-month period that ends sometime other than December 31

short tax year can result because the business began after the start of the tax year or ended before the end of the tax year

if your business has , non-calendar business cycle or they have highly seasonal business—such as a restaurant in a summer resort area—would likely benefit from reporting their financials on a fiscal year. and this will a better measure of how a business performs over its natural business cycle.

i. A major league football team

Generally a major league football team will chose short tax year . Mostly tax years consist of 12 months, but a short tax year can result because the business began after the start of the tax year or ended before the end of the tax year. A short tax year can also result because of a change in the tax year
ii. A moving company

Genrally moving company adopt shor year or more then 12 month period as  year end (also known as its ‘accounting reference date’) to make your company’s financial year run for more or less than 12 months.

Changing your company’s year end will also change your deadline for filing accounts, unless you’re doing your first year’s accounts.

The rules on changing your financial year end

You can shorten your company’s financial year as many times as you like – the minimum period you can shorten it by is 1 day.

You can lengthen your company’s financial year:

• to a maximum of 18 months, or longer if your company’s in administration
• once every 5 years

iii. A tax preparation business

generally Tax preparation business will chose a calander year

Answer to question 15

The mortgage interest tax deduction is one of the most cherished tax breaks.

Firstly you will get  interest tax deduction

The second is that every dollar paid in mortgage interest results in a dollar-for-dollar reduction in income tax liability