Effect of property accounting on tax returns;

              Effect of Property Accounting on Tax Returns
BY JACK MACY PRINCIPAL, CHICAGO OFFICE
Presented before the National Association of Cost Accountants, St. Louis Chapter — November, 1955
Fixed assets, property, bulk large in the balance sheets of the great majority of industrial companies. In some companies, such as utilities, they often dwarf other asset categories. But solid as they may be physically and as representing financial strength, their real im­portance
is the contribution they make to production, operations, and profits.
In this light, physical properties represent expenses: expenses of current production and also expenses of future production. Just as the utilization of the physical assets represents a major part of the over-all profit making activity, so the accounting treatment of the cost of the assets, including its attribution to the proper accounting periods, represents a major part of the accounting function of profit determi­nation.
This accounting profit determination on an annual basis is also the same thing which lies at the heart of tax determination. For the most part, taxable income is the same as accounting income, although there are some important differences to be kept in mind. However, more important than the effect of the differences is the tremendous impact that the selection and application of accounting methods in property accounting can have on the tax return.
Before discussing some of the specific tax problems involved in property accounting, let us remember that there are three unfortunate things that can happen to an accounting expenditure before it becomes a tax deduction. One of these pitfalls that our would-be deduction must skirt might be called "deduction lost." The second might be labeled "benefit partially lost." An example of this would be an expense that had to be offset against capital gain instead of ordinary income. The third pitfall might be called "deduction deferred."
We all recognize the disadvantages of losing deductions in full or losing part of the tax benefit. But sometimes we can lose sight of the disadvantage of deferring a deduction. It is true that a deduction
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