Chapter 2 Flashcards
What are the three main domains of income tax law?
income, deductions, property transactions
Every transaction fits into one three categories, which are?
business, investment, personal
Every asset is categorized these four categories:
ordinary or capital
personalty or realty
How many times can you recover the basis in a asset?
once
Basis can be less than 0. T/F
False
Every time you receive income you must receive __________
basis in an amount equal to the income
Expenses are deductible if they are ________, ____________, and ___________
ordinary, necessary, reasonable
A trade or business can be defined as:
an activity engaged to earn a profit
What are hobbies not a business?
there is not enough effort exerted to try to earn a profit
Investment activities are defined as:
an acquisition of an asset with expectation that it will increase in value or produce an income stream that does not require effort.
What are ordinary assets?
asset that produces ordinary loss or gain
What is a section 1231 asset?
depreciable property and realty used in business that has been owned for over a year.
what is a capital asset?
any non-ordinary or non-section 1231 asset
When does a copyright become a capital asset?
when it is not held by it creator
Land or any structure permanently attached to land is called:
realty
What are the three categories of personalty assets?
tangible, intangible, natural
What are the requirements for income to be taxable?
taxpayer’s wealth has increased, they recognize the increase, there is no law excluding this type of income
What is realized income?
all event occured to complete the earnings process
What is recognized income?
realized income included in the computation of taxable income
When exchanging services, what is recorded as income?
the value of the service you receive
What makes a business transaction deductible?
it is ordinary, necessary, and reasonable
What makes an investment transaction deductible?
it is ordinary, necessary, and resonable, and related to: production of income, management of property held for income
What makes a personal transaction deductible
its charity, home mortgage interest expense, state & local taxes, medical expenses
When must a gain or loss be calculated?
every time you sell or dispose of property
