Have a Tax Question? Ask a Tax Expert
Does your brother report his taxes on a cash or accrual basis?
i have no idea. Pls hold and I will ask my husband
what is the difference between these two please?
When you are dealing with accounts receivable, you need to know if the A/R has already been included in income. Given the size of the number, my instinct would be that he was on an accrual basis, but that is only an assumption.
Accrual and cash basis are tax accounting concepts.
In accural you realize income when you issue a bill. You also realize an expense as soon as you incur it, regardless of whether ot not it's been paid.
On Cash basis you only realize taxable income when you receive the cash, therefore "accounts receivable doesn't exist!"
Based on the the amount billed out, the income was taxed from the payments from insurers. Whats left in the form of A/R is money "still owed" by the insurance companies.
Yes, Accounts Receivable means the money is "still owed". I understand. The question is whether his books are kept on an accrual basis or a
Okay, now the next question: If his books were kept on an accrual basis has he already written off these receivable as "bad debt" on his books?
no. these are not bad debt. the accounts are being sold as assets
This doesn't mean he let them go. It's an accounting determination the it is "more likely than not" that he would not collect the $20 million. (Since he sold it for $4, this seem reasonable.
Writing them off doesn't mean he can't sell them.
If you want to assume that these accounts were not written off, that's fine with me.
yes, lets assume they were not written off
Okay, then I have your answer:
Based on the two assumptions that his taxes were reported on an accrual basis and that he never took a bad debt write off, then he is realizing a $16 million dollar ordinary loss on the sale of the accounts receivable. It would not be capital as A/R is not a capital asset. (This by the way is the better answer.)
Secondly, if we have a tax debt of over $100 000, can we pay it off in installments?
Yes, however for a debt that size, the IRS will want a financial statement.
Is this a personal tax debt or the corporation?
Must a financial statement be produced even with personal taxes?
Yes, it depends on the amount of taxes owed.
Under $25,000, they don't ask for a financial statement.
$25-$50K, they ask for a few numbers but don't verify them at all.
Over $50K, they require IRS Form 433-A to be submitted.
OK. Thank you very much.
By the way, since we are talking about accounts receivable and owing taxes in the same conversation, it is possible to get the IRS
to "levy your accounts receivable". They become your bill collector--of course, this means that these accounts receivable will learn
that you have tax issues.
Just wanted to mention that. If you have no further questions, please click on happy face below.