nnのCPA試験の旅 in Hawaii CPA試験の旅 in Hawaii

Hello again!

by nn_77
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タグ:Installment Sales ( 1 ) タグの人気記事

Hello, nn
Thanks sooo much for responding my series of questions.
As always, that is relly helpful for me to understand points.
I have one more quick question. That would be probably my last one before my leaving in a few days.

For installment sales, the taxable gain is recorgnized when cash is received? That is the same as installment method under financial accounting, right? Under my text book, there seems to be difference between GAAP (financial accounting)and Tax treatment. However, it looks like same. Maybe I'm a little confused.

Hello, again, yuwa.

I don't know how to respond to you when you just say "there seems to be difference between GAAP (financial accounting)and Tax treatment. However, it looks like same," without indicating what point makes you so confused...

Anyway, according to my old textbook of Anjo international;

====(Quotation from Anjo's textbook)======================
The installment method of reporting income applies to dispositions of property where at least one payment is to be received after the year in which the disposition occures.

a) The installment method is required, unless taxpayer makes a negative election to report the full amount of gain in year of sale.

b) The amount to be reported in each year is determined by the formula

Gross profit of entire sale / Total contract price × Amount received in year

a) 売却年度に利益の全額を申告しない選択を行わない限り、割賦基準の使用が要求される。

b) 各年に報告されるべき金額は、以下の式によって求められる。

 全ての販売の総利益÷契約の合計額 × その年の受取額

The description above well explains what is the necessary treatment for installment accounting method in the context of calcluation of taxable income.

Besides, it completely matches the explanation given in the IRS website below.

== Quoted from the official website of IRS ======================

Topic 705 - Installment Sales

An installment sale is a sale of property at a gain where at least one payment is to be received after the tax year in which the sale occurs. You are required to report the sale under the installment method unless you "elect out" on or before the due date for filing your tax return for the year of the sale. If you elect out, you report all the gain as income in the year of the sale. Installment sale rules do not apply to losses. You cannot use the installment method to report gain from the sale of inventory or stocks and securities traded on an established securities market.

Under the installment method, you include in income each year only part of the gain you receive, or are considered to have received (your gain is generally the amount by which the proceeds you receive or will receive from your sale, not counting interest, exceed your adjusted basis in the property you sold). Use Form 6252 (PDF), Installment Sale Income, to report installment income each year. You will need to file Form 1040 (PDF), and may need to attach Form 4797 (PDF) and Form 1040, Schedule D (PDF).

You can reach the above page just by searching at Google for the key word: "irs" and "installment method."

Well, Good luck for you REG exam, which is just around the corner.
I hope you can do your best.
by nn_77 | 2009-04-19 23:21 | >REG | Comments(3)