Ordinary Income Calculations

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N Sengupta Tax Payer Posts: 9 (1/29/03 2:32 pm)	Ordinary Income Calculations Hi Everyone, Here is another question. If we use the Cash method of accounting, how are things like loans calculated? For example: Gross sales: 1000 Loan to someone outside of company: 100 Is Ordinary income: 1000 or 900? If it's 1000, then we are paying taxes on the loan money too. To give a more extreme example: Gross sales: 1000 Loan to someone outside of the company: 700 If Taxable income: 1000 Tax: 400 (for example) Net to Shareholders: -100! Thanks, Narayan
bmcper CEO/Auditor Posts: 209 (1/29/03 3:57 pm)	Re: Ordinary Income Calculations Whether you are using the cash method or the accrual method, a loan is a loan and is not ordinary income. It is a receivable. Ordinary income is monies derived from doing business. Unless you are in the loan business, the loan is an asset on your books as a loan receivable.
N Sengupta Tax Payer Posts: 10 (1/29/03 4:02 pm)	Thank you! Thanks Bernadette, So if I am understanding you correctly, even though we don't have the money that we have loaned out, we still have to pay taxes on it and can't treat it like an expense or something until we get paid back and then pay taxes on it? Narayan

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