Tax Accounting Methods

Question 1

A cash-basis taxpayer should report gross income for the year in which income is either _____ or _____ received, whether in cash or in _____

Answer 1

Actually
Constructively
Property

Question 2

This means that an item is unqualifiedly available without restriction

Answer 2

Constructive Receipt

Question 3

The cash method cannot generally be used if ______ are necessary to clearly reflect income

Answer 3

Inventories

Question 4

T/F

The cash method can be used by C Corporations

Answer 4

FALSE

Question 5

T/F

The cash method can be used by partnerships that have a C corporation as a partner

Answer 5

FALSE

Question 6

T/F

The cash method can be used by tax shelters

Answer 6

FALSE

Question 7

T/F

The cash method cannot be used by certain tax-exempt trusts

Answer 7

TRUE

Question 8

This is a corporation performing services in health, law, engineering, accounting, actuarial science, performing arts, or consulting

Answer 8

A qualified personal service corporation

Question 9

A qualified personal service corporation can use the cash method if at least ____ of stock is owned by specified shareholders including employees

Answer 9

95%

Question 10

Any entity other than a tax shelter may use the cash method if for every year it has an average annual gross receipts of _______ for any prior 3-year period and provided it does not have inventories for sale to customers

Answer 10

$5M or less

Question 11

A small business taxpayer with an average annual gross receipts of _____ for any prior three-year period can use the cash method and is excepted from the requirements to account for inventories and use the accrual method for purchased and sales of merchandise

Answer 11

$1M or less

Question 12

A small business taxpayer is eligible to use the cash method of accounting if, in addition to having average gross receipts of more than $1M but less than $10M, the business meets an one of what requirements?

Answer 12

1) The principal business is not retailing, wholesaling, manufacturing, mining, publishing, or sound recording
2) The principal business activity is the provision of services or custom manufacturing

Question 13

T/F

A taxpayer using the accrual method who meets the small-business taxpayer to be on a cash-basis may change to the cash basis provided they treat merchandise inventory as a material or supply that is not incidental

Answer 13

TRUE

Question 14

T/F

Unless the IRS consents to a change of method, the accrual method of tax reporting is generally mandatory for a sole proprietor when there are accounts receivable for services rendered

Answer 14

FALSE

Question 15

T/F

Unless the IRS consents to a change of method, the accrual method of tax reporting is generally mandatory for a sole proprietor when there are year-end merchandise inventories

Answer 15

TRUE

Question 16

A cash-basis employer pays 2014 year-end bonuses to the employees in 2015. When is this expense deductible?

Answer 16

In 2015, because the employer is cash basis