ACC250 Chapter 11 Flashcards
A ratable amount of the market discount at the time of purchase (based on the number of days the bond is held over the number of days until maturity when the bond is purchased) that is treated as interest income when a bond with market discount is sold before it matures.
ACCRUED MARKET DISCOUNT
An individual who owns at least 10% of a rental property and participate sin the process of making management decisions, such as approving new tenants, deciding on rental terms, and approving repairs and capital expenditures.
ACTIVE PARTICIPANT IN A RENTAL ACTIVITY
A taxpayer’s before-tax rate of return on an investment minus the taxes paid on the income from the investment. The formula when this is taxed annually:
before-tax rate of return(1-marginal tax rate)
AFTER-TAX RATE OF RETURN
The method of recovering the cost of intangible assets over a specific time period.
AMORTIZATION
An investor’s risk of loss in a worst-case scenario. In a partnership, an amount generally equal to a partner’s tax basis exclusive of the partner’s share of nonrecourse debt.
AT-RISK AMOUNT
A taxpayer’s unrecovered investment in an asset that provides a reference point for measuring gain or loss when an asset is sold.
BASIS
A taxpayer’s rate of return on an investment before paying taxes on the income from the investment.
BEFORE-TAX RATE OF RETURN
A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing.
BOND
The result of issuing bonds for less than their maturity value.
BOND DISCOUNT
The result of issuing bonds for more than their maturity value.
BOND PREMIUM
In general, an asset other than an asset used in a trade or business or an asset such as an account or note receivable acquired in a business from the sale of services or property.
CAPITAL ASSET
The amount, if any, an owner of a life insurance policy receives when the policy is cashed in before the death of the insured individual.
CASH SURRENDER VALUE
An interest-bearing debt instrument offered by banks and savings and loans. Money removed from the CD before maturity is subject to a penalty.
CERTIFICATE OF DEPOSIT
A work of art, a rug or antique, a metal or gem, a stamp or coin, an alcoholic beverage, or other similar items held for investment for more than one year.
COLLECTIBLE
A distribution to shareholders of money or property from the corporation’s earnings and profits.
DIVIDEND
The relevant date for determining who receives a dividend from a stock. Anyone purchasing stock before this date will receive current dividends. Otherwise, the purchaser must wait until subsequent dividends are declared before receiving them.
EX-DIVIDEND DATE
A tax directly imposed by a government.
EXPLICIT TAX
A specified final amount paid to the owner of a coupon bond on the date of maturity. Also known as the maturity value.
FACE VALUE
An accounting method that values the cost of assets sold under the assumption that the assets are sold in the order purchased.
FIRST-IN FIRST-OUT (FIFO) METHOD
Legal entities like partnerships, limited liability companies, and S corporations that do not pay income tax. Income and losses from flow-through entities are allocated to their owners.
FLOW-THROUGH ENTITY
Indirect taxes that result from a tax advantage the government grants to certain transactions to satisfy social, economic, or other objectives. They are defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status.
IMPLICIT TAX
Expenses such as safe deposit rental fees, attorney fees, and accounting fees that are necessary to produce portfolio income. Allowed for individuals as miscellaneous itemized deductions subject to the 2% AGI floor.
INVESTMENT EXPENSES
Income received from portfolio type investments. Includes capital gains and losses, interest, dividend, annuity, and royalty income not derived in the ordinary course of trade or business.
INVESTMENT INCOME
Interest paid on borrowings or loans that are used to fund portfolio investments. Individuals are allowed an itemized deduction for qualified investment interest paid during the year.
INVESTMENT INTEREST EXPENSE
Gains or losses from the sale of capital assets held for more than 12 months.
LONG-TERM CAPITAL GAINS OR LOSSES
The difference between the amount paid for a bond in a market purchase rather than at original issuance when the amount paid is less than the maturity value of the bond.
MARKET DISCOUNT
The difference between the amount paid for a bond in a market purchase rather than at original issuance when the amount paid is greater than the maturity value of the bond.
MARKET PREMIUM
The amount of time to the expiration date, or maturity date, of a debt instrument. Generally the life of an instrument at which a payment of the face value is due of the instrument terminates.
MATURITY
The amount paid to a bondholder when the bond matures and the bondholder redeems the bond for cash.
MATURITY VALUE
A diversified portfolio of securities owned and managed by a regulated investment company.
MUTUAL FUND
The net gain resulting when taxpayers combine net long-term capital gains with net short-term capital losses.
NET CAPITAL GAIN
(for determining deductibility of investment interest expense) gross investment income reduced by deductible investment expenses.
NET INVESTMENT INCOME
The net gain resulting when taxpayers combine long-term capital gains and losses for the year.
NET LONG-TERM CAPITAL GAIN
The net loss resulting when taxpayers combine long-term capital gains and losses for the year.
NET LONG-TERM CAPITAL LOSS
The net gain resulting when taxpayers combine short-term capital gains and losses for the year.
NET SHORT-TERM CAPITAL GAIN
The net loss resulting when taxpayers combine short-term capital gains and losses for the year.
NET SHORT-TERM CAPITAL LOSS
The annual income from a trade or business ore rental activity.
OPERATING INCOME
The annual loss from a trade or business or rental activity.
OPERATING LOSS
A type of bond issued for less than the maturity or face value of the bond
ORIGINAL ISSUE DISCOUNT
tax rules designed to limit taxpayers’ ability to deduct losses from activities in which they don’t materially participate against income from other sources.
PASSIVE ACTIVITY LOSS RULES
Direct or indirect investments (other than through a C corporation) in a trade or business or rental activity in which the taxpayer does not materially participate.
PASSIVE INVESTMENTS
Investments producing dividends, interest, royalties, annuities, or capital gains.
PORTFOLIO INVESTMENTS
Paid by domestic or certain qualified foreign corporations that are eligible for lower capital gains rates.
QUALIFIED DIVIDENDS
Stock received at original issue from a corporation with a gross tax basis in its assets both before and after the issuance of no more than %50,000,000 and with 80% of the value of its assets used in the active conduct of certain qualified trades or businesses.
QUALIFIED SMALL BUSINESS STOCK
A state-sponsored program designed to help parents finance education expenses by generating tax-free income. Administered by certain investment companies and are subject to contribution requirements and investment guidelines.
QUALIFIED TUITION PROGRAM (529 PLAN)
Gains or losses from the sale of capital assets held for one year or less.
SHORT-TERM CAPITAL GAINS OR LOSSES
An elective method for determining the cost of an asset sold. Taxpayer specifically chooses the assets that are to be sold.
SPECIFIC IDENTIFICATION METHOD
The amount of a taxpayer’s unrecovered cost of or investment in an asset.
TAX BASIS
An investment or other arrangement designed to produce tax benefits without any expectation of economic profits.
TAX SHELTER
A form of life insurance without an investment or savings feature.
TERM INSURANCE
A debit instrument issued by the US Treasury at face value, at a discount or at a premium, with a set interest rate and maturity date that pays interest semiannually. Have terms of 30 years.
TREASURY BOND
A debt instrument issued by the US Treasury at face value, at a discount or at a premium, with a set interest rate and maturity date that pays interest semiannually. Terms of 2, 5 or 10 years.
TREASURY NOTE
A gain from the sale of real estate held by a noncorporate taxpayer for more than one year in a trade or business or as rental property attributable to tax depreciation deducted at ordinary tax rates. This gain is taxable at a maximum 25 % capital gains rate.
UNRECAPTURED SECTION 1250 GAIN
Debt instruments issued by the US Treasury at face value or at a discount, with a set maturity date. Interest earned is paid either at maturity or when the bonds are converted to cash before maturity.
U.S. SAVINGS BOND
The sale of an investment if that same investment (or substantially identical investment) is purchased within 30 days before or after the sale date. Losses on wash sales are deferred.
WASH SALE
A form of life insurance with an investment or savings component.
WHOLE LIFE INSURANCE
A type of bond issued at a discount that pays interest only at maturity.
ZERO-COUPON BONDS
