Extraordinary income is non-recurring income resulting from unusual circumstances unlikely to repeat, such as asset sales or insurance deals. It requires special tax treatment and must be declared separately. Publicly traded companies must also disclose it in annual reports. Extraordinary losses, such as those from natural disasters, can also be declared. Companies may need to re-estimate taxes and use write-offs to offset tax burdens. Some extraordinary income is uncontrollable, such as insurance compensation.
Extraordinary income is unusual income that results from unusual circumstances that are unlikely to recur. For example, if a company were to sell unused real estate, this would generate income for the company, but that would be extraordinary, because it is unlikely to continue selling real estate on a regular basis. Such income receives special treatment for tax purposes on the grounds that it is unusual. It must be declared separately and may need to be handled with care. An accountant can provide assistance in determining whether something qualifies as extraordinary income and how to treat it in your tax returns.
This type of income is non-recurring. It does not represent a habitual and repeatable source of income. Things like insurance deals and asset sales qualify, while advisory fees, bonuses, and increased revenue from increased sales don’t. On the other hand, companies can also declare extraordinary losses, such as damages caused by a natural disaster. Because such losses can be difficult to predict and impact the company’s material financial health, they can be considered extraordinary.
In the case of publicly traded companies, there are various extraordinary income requirements. Like other companies, they have to declare income on their tax returns and pay the appropriate taxes on it. In addition, they must discuss the extraordinary income in their annual reports or press releases for investors. This makes people with shares in the company aware that it has posted a windfall gain that is unlikely to happen again. Investors may need to know about this because it could impact the value of the company and its stock.
Getting large, unexpected payments in one year can blow a company’s books. Businesses that pay estimated taxes may need to re-estimate to provide accurate payments to tax officials. They could also end up with an unusually large tax burden, which they could try to offset with write-offs. It is not uncommon for companies to report extraordinary income and losses at the same time, using the losses to lighten the tax burden associated with income.
Sometimes extraordinary income is not controllable. Businesses that receive insurance compensation, for example, may not have the ability to accept installments to spread their tax liability over several years. In other cases, it may be possible to make changes, such as not selling all the assets at once.
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