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General Comment about Matching Principles

29 July, 2015 - 16:31

Perhaps it does not seem very significant that implementation of matching principles results in disallowance of a deduction, loss, or credit because usually there is a carryover. Your attitude may be “pick it up next year.” Reality may be quite different. When losses are “locked inside” a particular activity or type of income, it probably is the case that circumstances are not going to change radically for a taxpayer from one year to the next. The investor who loses a deduction because of insufficient income of a particular type is not likely suddenly to receive a lot of that type of income during the next year. The effect of implementing matching principles in reality may be that the excess expense or loss is simply disallowed – forever. However, forewarned is forearmed. Taxpayers may choose their activities or transactions so that he/she/it will have gains against which losses can be can be matched.