Definitions Flashcards
What is the definition of gross income?
All income from whatever sourced derived.
3 Requirements that must be met to records Gross Income
RAD
Realization
Accession to wealth
Dominion, Control
Accession of wealth defined
Tax payers net worth increased. Asset-liabilities. Loans don’t count.
Realization is when
There’s a trigerring effent that requires you to record income.
Is a stock increasing in valuation a realization of wealth
No because although it increased, you didn’t collect the money. Only when you sell or exchange the stock.
Dominion and Control
Control the income to be received with no strings attached.
Is a security deposit gross income?
No, because you don’t have control of the money. Assets and a liability increases and it doesn’t increase your net worth.
Common Types of Income is defined in what section
61A
Examples of gross income
Compensation for services Gross income derived from business gains from property interest rent royalties dividends alimony, divorce before 2019 Annuities Pensions Income from discharge of debt Share of partnership income Income in respect of decedent Income from interest in estate trust
Constructive Receipt - 4 Requirements
credited to his or her account, set apart for him or her, or otherwise made available so that (s)he may draw upon it at any time, or so that (s)he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.
When is a check included in income?
When received, whether or not cashed.
T/F - Constructive receipt is only use for the cash basis method
True
Claim of Right Doctrine Definition
taxpayer receiving payments under a claim of right and without restrictions on its use or disposition includes the payment in income in the year received even though the right to retain the payment is not yet fixed or the taxpayer may later be required to return it.
Under the claim of right doctrine, if you get a bonus and you have to pay it back if you leave the company early, do you have to include it in income?
Yes
If payment is paid in property, what is included in gross income?
The FMV of the property.
What is your basis in the property received to pay for your services?
The basis is the amount included in income.
If you agreed on a price for services and afterwards you decide to accept a piece of property for the services, would income be the negotiated service price or the FMV of the property?
The negotiated service price would be considered income.
For tipped food service employees, what is the amount of taxable income related to tips?
(Total food / drinks sales * 8%) - tips received = Taxable income tips
Who will received a 1099-K?
1) Payment cards - debit, credit, store valued cards
2) Third party networks when total transactions exceed both $20k and 200 transactions.
T/F Prepayments are excluded from gross income until servive.
False, they are included with an exception of the purchase is for merchandise. These are included in gross income when the item ships.
Bartered Service and Goods are included in gross income at..
The FMV of the goods
What is the assignment of income doctrine?
Gross income includes income attributable to a person even though the income is received by other persons. This doctrine imposes the tax on income on those who earn it, produce the right to receive it, enjoy the benefit of it when paid, or control property that is its source.
If you direct your commission for a service you perform to be paid to another party, who pays the tax?
The person who performed the service.
If you have a bond that earns interest, and you assign the interest to be paid to your daughter, who pays the tax?
The bondholder.
How do you assign an asset to another party?
transfer of property be complete and bona fide, with no control retained over either the property or the income it produces, and that the transfer take place before the income is actually earned
Are royalties gross income or a return of capital and capital income?
Gross income
Cash or the FMV of property received in exchanged for using personal property is gross income on Schedule C, Line 8 of 1040 or Schedule E?
Schedule C. Schedule E is for rental property and real estate.
Its on Line 8 of 1040, if you aren’t in the business of renting property as a business.
Where are deductions for the expense of rental property?
Schedule C if for a business or line 22 if you rent it personally.
If you rental your property periodically and not-for-profit, , how much can you deduct?
You can deduct up to rental income.
How long can you carry losses for a not for profit rental activity?
You can’t.
Not for profit rental income is reported on…?
1040 and 1040 NR.
If you rent property as a business, it is classified as a not-for-profit rental if you don’t make an income during what period?
3 out of 5 years need to show an income to be a rental business.
