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Baddebt refers the irrecoverable accounts receivable from the businessdebtors (Andrew & Minniti, 38). A bad debt is an expense to thebusiness, and it is an allowable for taxation if the credit sales inwhich they result from, was previously included in income. Therefore,Bad debt is only allowable for taxation to an entity using theaccrual basis of accounting, but not those using cash basis. Bad debtis deductible for taxation in the financial year that the receivableshave proven to be worthless. However, if bad debt that was previouslywritten off comes to be recovered in future, the proceeding resultsin a taxable income, and it must be recognized for financialreporting.
Worthlesssecurities, stock, net operating loss, theft and loss on individualsare also forms of tax planning, and they are deductible from thegross income. Individual and business owners therefore, should takethe advantage of such allowances in the attempt to minimize their taxliability (William & James, 7-15). The loss on stock andsecurities is deductible in the year that they become worthless.However, the corporations must meet the prescribed requirements toqualify for the deduction on losses on stock and securities.Deductions for individual losses are only granted only if the losswas incurred in business transactions with an aim of making a profit.
Domesticproduction activities deductions is another way of tax planning thatreduces the tax liability of the firm. This is a recently introduceddeduction after the American Jobs Act of 2004 created it based on theincome from the manufacturing activities. The deduction is calculatedas follows the lessor of 9% of qualified production activity incomeor 9% of the taxable income or AMTI. Lastly, the net operating lossesin one year are also deductible to the income of the succeedingyears. However, there are limits to the number of years a NOL can becarried forward depending on the type of business.
WilliamH. Hoffman, J., and James E. South-WesternFederal Taxation: Individual Income Taxes, 2016 EditionCENGAGE Learning. 2010. Print
MinnitiM., Andrew Z. Taxation.Westport, Conn: Praeger, 2009. Print.