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Study sets matching "tax chapter 5"

46 terms
Tax Chapter 5
Trade and business expenses should be…
Which of the following can be claimed…
Which of the following is not a "trade…
Which of the following is a required t…
c. Deduction for AGI
e. None of the above... RATIONALE: All of these expenses are cla…
c. Parking ticket paid on business auto
d. All of the above
Trade and business expenses should be…
c. Deduction for AGI
Which of the following can be claimed…
e. None of the above... RATIONALE: All of these expenses are cla…
24 terms
TAX Chapter 5
standard deduction
itemized deduction
medical expenses
deductible costs for medical expenses
depends on you filing status
reported on schedule A in six major categories... -medical... -stat…
floor of 10% of AGI, must be for a dependent or spouse
diagnosis, cure, mitigation, treatment, or prevention of dise…
standard deduction
depends on you filing status
itemized deduction
reported on schedule A in six major categories... -medical... -stat…
17 terms
Tax Chapter 5
Gifts and Inheritances
Gifts given from employer
Employee Death Benefits
Employee Death Benefits: Voluntary Pay…
-Recipient of a gift is allowed to exclude it from gross inco…
Concert tickets given to employee from boss are taxable becau…
-Employer makes payments to deceased employee's living spouse…
Considered gifts and not taxed if:... -payments made to survivor…
Gifts and Inheritances
-Recipient of a gift is allowed to exclude it from gross inco…
Gifts given from employer
Concert tickets given to employee from boss are taxable becau…
30 terms
Tax Chapter 5
What is income
Three requirements for recognizing inc…
Income is realized when
Form of Receipt
IRC section 61 (a): "Gross income means all income from whate…
1. when they receive an economic benefit... 2. realize the incom…
1. a taxpayer engages in arm's- length transaction with anoth…
a common misconception is that taxpayer must receive cash to…
What is income
IRC section 61 (a): "Gross income means all income from whate…
Three requirements for recognizing inc…
1. when they receive an economic benefit... 2. realize the incom…
43 terms
Tax Chapter 5
Treasure trove -- In class
Gross income
Recognize gross income WHEN:
Economic benefit defined:
-Finding random money still counts as income. Finding ANYTHIN…
Any source of derived income unless there is a exclusion.... -Co…
(1) Receive an economic benefit... (2) The income is realized... (3…
-Being paid for services rendered which can include PROPERTY,…
Treasure trove -- In class
-Finding random money still counts as income. Finding ANYTHIN…
Gross income
Any source of derived income unless there is a exclusion.... -Co…
25 terms
Tax - Chapter 5
Gifts
Inheritance
Life insurance
Term life insurance
nontaxable to the donee
nontaxable to the beneficiary, interest earned is taxable, tr…
proceeds exempt income to beneficiary... if paid solely due to d…
keep paying on the premium
Gifts
nontaxable to the donee
Inheritance
nontaxable to the beneficiary, interest earned is taxable, tr…
35 terms
Tax Chapter 5
Reasons for exclusions
Gifts are taxable to donee if:
Are inheritances taxable?
Employers to employees do not qualify…
social welfare... preventing double taxation... incentive to social…
transfer is voluntary without adequate consideration... made ou…
NO
exludible gifts
Reasons for exclusions
social welfare... preventing double taxation... incentive to social…
Gifts are taxable to donee if:
transfer is voluntary without adequate consideration... made ou…
22 terms
Tax - Chapter 5
Accelerated Death Benefits
Cafeteria (Flexible) Benefit Plan
Compensatory Damages
Coverdell Education Savings Account
The amount received from a life insurance policy by the insur…
An employee benefit plan under which an employee is allowed t…
Damages received or paid by the taxpayer can be classified as…
Exempts from tax the earnings on amounts placed in a qualifie…
Accelerated Death Benefits
The amount received from a life insurance policy by the insur…
Cafeteria (Flexible) Benefit Plan
An employee benefit plan under which an employee is allowed t…
25 terms
Tax Accounting - Chapter 5
What is the broad definition of gross…
Taxpayers must received ______ to have…
What is the realization principle?
What does wherewithal to pay mean?
All income from whatever source derived, unless excluded by l…
Economic benefit - receive an item of value
Income is realized when (1) a taxpayer engages in a transacti…
the transaction provides the taxpayer with the funds to pay t…
What is the broad definition of gross…
All income from whatever source derived, unless excluded by l…
Taxpayers must received ______ to have…
Economic benefit - receive an item of value
52 terms
chapter 5 tax
exclusions
gifts are not taxable to the donee if
inheritances are nontaxable to who?
Is income earned on gifts or inheritan…
items of income that are specifically designated as not inclu…
1. transfer is voluntary without adequate consideration... 2. ma…
the beneficiary.
yes.
exclusions
items of income that are specifically designated as not inclu…
gifts are not taxable to the donee if
1. transfer is voluntary without adequate consideration... 2. ma…
50 terms
CHAPTER 5 TAX
1. The cost of which of the following…
2. The cost of which of the following…
3. Which of the following is not consi…
4. Which of the following taxes may be…
C. Acupuncture
B. Birth control pills
D. Diet foods
E. Local income taxes
1. The cost of which of the following…
C. Acupuncture
2. The cost of which of the following…
B. Birth control pills
17 terms
Tax Chapter 5
When is an expense ordinary?
X, a shareholder-employee of Pigeon, I…
The portion of a shareholder-employee'…
Are closely- held family corporations…
An expense is ordinary if it is normal, usual or customary in…
F.... X's divide income would increase by 100,000
T... Generally a closely-held family corporation is not permitte…
Yes they are permitted, as long as the salary is considered r…
When is an expense ordinary?
An expense is ordinary if it is normal, usual or customary in…
X, a shareholder-employee of Pigeon, I…
F.... X's divide income would increase by 100,000
22 terms
Tax Chapter 5
2 broad expense categories
Profit Motivated
Personal
Categories of deductible expenses
Profit motivated... Personal
Trade or business... Production of income... *except rent
Specifically allowed itemized deductions... Nondeductible person…
For AGI... From AGI
2 broad expense categories
Profit motivated... Personal
Profit Motivated
Trade or business... Production of income... *except rent
25 terms
Tax Research Chapter 5
Ad hoc
Ad valorem
Appellant
Bona Fide
For one particular or special purpose.
According to value.
The party who appeals a decision, usually to a higher court
In good faith and without fraud or deceit
Ad hoc
For one particular or special purpose.
Ad valorem
According to value.
31 terms
Tax Research Chapter 5
16th Amendment
Code Sec 61
All inclusive income concept
Primary purpose of a tax regime
gives Congress the power to tax income from whatever source d…
defines income as "all income from whatever source derived, i…
an accession to the taxpayer's wealth is taxable as income un…
collect revenues to pay for public services
16th Amendment
gives Congress the power to tax income from whatever source d…
Code Sec 61
defines income as "all income from whatever source derived, i…
35 terms
Tax Accounting Chapter 5
Administrative Sources of Tax Law
Regulations
Proposed Regulations
Temporary Regulations
Treasury Department Regulations... Revenue Rulings... Revenue Proce…
Issued by US Treasury Department... Provide general interpretati…
preview of final regulations (don not have force and effect o…
issued when guidance needed quickly (same authoritative value…
Administrative Sources of Tax Law
Treasury Department Regulations... Revenue Rulings... Revenue Proce…
Regulations
Issued by US Treasury Department... Provide general interpretati…
15 terms
Tax Accounting Chapter 5
all-events test
capital expenditure
conduit entity
dominant motive
An accrual basis taxpayer may deduct expenses in the year in…
Taxpayers cannot deduct capital expenditures in total in the…
A nontaxable reporting entity, the tax attributes of which (i…
An expense frequently is incurred for both business and perso…
all-events test
An accrual basis taxpayer may deduct expenses in the year in…
capital expenditure
Taxpayers cannot deduct capital expenditures in total in the…
77 terms
Tax Quiz Chapter 5
When are deductions allowed?
When is an expense Ordinary
When is an expense Necessary?
When is an expense Reasonable in Amount?
When they are ordinary, necessary, and reasonable in amount
- Normal, usual, or customary under regular business circumst…
- Must be appropriate and helpful to the taxpayer's business…
- An expense will not satisfy the Ordinary and Necessary test…
When are deductions allowed?
When they are ordinary, necessary, and reasonable in amount
When is an expense Ordinary
- Normal, usual, or customary under regular business circumst…
40 terms
Tax Chapter 5
realization principle
wherewithal to pay
gross income
barter clubs
taxpayer engages in transaction with another party... transactio…
transaction itself provides the taxpayer with the funds to pa…
all income from whatever source derived... receive economic bene…
exchange of rights to goods and services... dont recognize incom…
realization principle
taxpayer engages in transaction with another party... transactio…
wherewithal to pay
transaction itself provides the taxpayer with the funds to pa…
24 terms
Tax Chapter 5
Exclusions
Gifts
Inheritances
Life Insurance Proceeds
Items of income that are specifically designated as not in gr…
Nontaxable to donee if:... -Transfer is voluntary without adequa…
Nontaxable to beneficiary... Income earned on inheritances is t…
Life insurance proceeds paid to the beneficiary because of de…
Exclusions
Items of income that are specifically designated as not in gr…
Gifts
Nontaxable to donee if:... -Transfer is voluntary without adequa…
34 terms
Chapter 5 Tax Research
16th Amendment
Code Section 61
All inclusive income concept
Starting point
Gives Congress the power to tax income from whatever source d…
Defines income as "all income from whatever sourced derived,…
An accession to the taxpayer's wealth is taxable as income un…
Tax accounting income does not equal financial accounting inc…
16th Amendment
Gives Congress the power to tax income from whatever source d…
Code Section 61
Defines income as "all income from whatever sourced derived,…
61 terms
Tax: Chapter 5
gross income
benefit, realize, provision
realization principle
wherewithal to pay
income that taxpayers realize, recognize, and report on their…
Taxpayers recognize gross income when:... 1. They receive an eco…
Under this principle, income is realized when:... 1. A taxpayer…
when a transaction itself provides the taxpayer with the fund…
gross income
income that taxpayers realize, recognize, and report on their…
benefit, realize, provision
Taxpayers recognize gross income when:... 1. They receive an eco…
11 terms
Tax Chapter 5
Realization Principle
Economic benefit doctrine
Tax benefit rule(Sect 111)
Accrual based tax payer income recogni…
mere appreciation in wealth (economic income) generally not s…
taxpayers must receive an economic benefit in the transaction…
if a refund is made for an expenditure deducted in a previous…
income is recognized as it is earned, regardless of when it i…
Realization Principle
mere appreciation in wealth (economic income) generally not s…
Economic benefit doctrine
taxpayers must receive an economic benefit in the transaction…
44 terms
tax chapter 5
exclusions
gifts
employment relationship and gifts
taxable unless for
not going to be taxed
when received, do not have to pay taxes on it; but pay for it…
never a gift, always compensation
books, tutions, school supplies
exclusions
not going to be taxed
gifts
when received, do not have to pay taxes on it; but pay for it…
24 terms
Tax Chapter 5
Accelerated death benefit
Accident and health benefits
Cafeteria plan
Compensatory damages
amount received from a life insurance policy by the insured w…
the premiums are deductible by the employer and excluded from…
employee is permitted to choose between cash and nontaxable b…
intended to compensate the taxpayer for the damages incurred-…
Accelerated death benefit
amount received from a life insurance policy by the insured w…
Accident and health benefits
the premiums are deductible by the employer and excluded from…
11 terms
Tax Chapter 5
Tax Basis
Tax Benefit Rule
Constructive Receipt Doctrine
Claim of Right Doctrine
The cost of an asset
refunds of expenses deducted in a prior year are included in…
must realize and recognize income when it's actually or const…
income is recognized when there aren't any restrictions on us…
Tax Basis
The cost of an asset
Tax Benefit Rule
refunds of expenses deducted in a prior year are included in…
29 terms
Chapter 5 Tax Review
Earned Income
Unearned Income
Tax Basis
Return on Capital
Income from labor/services... - most common source of gross income
Income from property ... - Include gains/losses from sale of pro…
Cost of an asset... - Skin in the game
Tax basis is excluded when calculating realized income
Earned Income
Income from labor/services... - most common source of gross income
Unearned Income
Income from property ... - Include gains/losses from sale of pro…
64 terms
Tax Chapter 5
Gross Income
Deferred income is taxed when ...
Definition of gross income for tax pur…
Taxpayers recognize gross income when
Taxpayers report realized and recognized income on their tax…
recognized in a subsequent year
§61(a) - "gross income means all income from whatever source…
(1) they receive an economic benefit... (2) they realize the in…
Gross Income
Taxpayers report realized and recognized income on their tax…
Deferred income is taxed when ...
recognized in a subsequent year
25 terms
Chapter 5 Tax
Allowance
Business or license tax
Customs duty or tariff
Deduction
A number that you calculate on a Form W-4 that reduces that a…
Fee paid for a license, permit, or stamp to operate certain k…
Taxes imposed on imported goods
Any expenses you can legally subtract from your income when f…
Allowance
A number that you calculate on a Form W-4 that reduces that a…
Business or license tax
Fee paid for a license, permit, or stamp to operate certain k…
246 terms
Tax - chapter 5
realization and recognition of income
...
all-inclie definiion of income
...
gross income is income that taxpayers realize, recognize, and…
GENERAL DEFINIT ION.—Except as otherwise provided in this sub…
it is clear... that unless a tax provision says otherwise, gross…
Gross income means all income from whatever source derived, u…
realization and recognition of income
gross income is income that taxpayers realize, recognize, and…
...
GENERAL DEFINIT ION.—Except as otherwise provided in this sub…
15 terms
Chapter 5- Tax
Gift and Inheritance
Life Insurance
Social Security Benefits
Educational Savings Bond
Not taxable, excluded from gross income.
Tax free. Payment plans can be taxed due to interest
Low income tax free, up to 85% of SS benefit will be taxed if…
Must be purchased before 1989... At least 24 years old, with ori…
Gift and Inheritance
Not taxable, excluded from gross income.
Life Insurance
Tax free. Payment plans can be taxed due to interest
25 terms
Chapter 5 Tax Vocab
allowance
business or license tax
customs duty or tariff
deduction
A number that you calculate one Form W-4 that reduces the amo…
Fee paid for a license, permit, or stamp to operate certain k…
Taxes imposed on imported goods.
Any expenses you can legally subtract from your income when f…
allowance
A number that you calculate one Form W-4 that reduces the amo…
business or license tax
Fee paid for a license, permit, or stamp to operate certain k…
23 terms
Tax Chapter 5
gross income
all inclusive definition of income
Recognize income when:
Examples of economic benefit
income that taxpayers realize, recognize, and report on their…
all income from whatever source derived, unless excluded by l…
1) they receive an economic benefit, 2) they realize the inco…
being paid for services rendered (cash, property or services)…
gross income
income that taxpayers realize, recognize, and report on their…
all inclusive definition of income
all income from whatever source derived, unless excluded by l…
Chapter 5 tax vocab
allowance
business or license tax
customs duty or tariff
deduction
A number that you calculate one Form W-4 that reduces the amo…
Fee paid for a license, permit, or stamp to operate certain k…
Taxes imposed on imported goods.
Any expenses you can legally subtract from your income when f…
allowance
A number that you calculate one Form W-4 that reduces the amo…
business or license tax
Fee paid for a license, permit, or stamp to operate certain k…
47 terms
Tax - Chapter 5
Gross Income
Tax definition of Gross Income
When do taxpayers recognize income?
Economic Benefit
- income that taxpayers realize, recognize, and report on the…
- except as otherwise provided in this subtitle, gross income…
Based on the code when:... 1. they receive economic benefit... 2. t…
- tax payers must receive an item of value to have gross inco…
Gross Income
- income that taxpayers realize, recognize, and report on the…
Tax definition of Gross Income
- except as otherwise provided in this subtitle, gross income…
25 terms
Tax Chapter 5
Gross income
Form of receipt
Return of capital
Tax benefit rule
recognized when people receive an economic benefit, income is…
you don't have to get cash to realize gross income
not included in gross income - you are getting your tax basis…
refunds deducted in prior year are included in gross income i…
Gross income
recognized when people receive an economic benefit, income is…
Form of receipt
you don't have to get cash to realize gross income
39 terms
Tax chapter 5
gross income (general definition)
gross income includes (but not limited…
income must be recognized when
taxpayer receives an economic benefit…
except as otherwise provided in this subtitle (s 61) gross in…
1-compensation for services including fees commissions fringe…
taxpayer receives an economic benefit... taxpayer realizes inco…
payment for services are rendered... proceeds from sales of pro…
gross income (general definition)
except as otherwise provided in this subtitle (s 61) gross in…
gross income includes (but not limited…
1-compensation for services including fees commissions fringe…
11 terms
chapter 5 bills interest and income tax
VAT stands for
when dealing with percentage profit or…
money you receive when you invest mone…
principal
Value added tax. it is a government taz
base the percentage on the cost price
interest
is the amount of money you invest
VAT stands for
Value added tax. it is a government taz
when dealing with percentage profit or…
base the percentage on the cost price
9 terms
Tax Chapter 5
Carey is a waiter at a restaurant that…
Wes was a major league baseball pitche…
Wilbur has been offered a job at a sal…
Sally was an all-state soccer player d…
...
...
...
...
Carey is a waiter at a restaurant that…
...
Wes was a major league baseball pitche…
...
44 terms
Tax Chapter 5
gross income
taxpayers recognize gross income when:
Economic benefit
Realization Principle
gross income means all income from whatever source derived, u…
(1)they receive an economic benefit... (2)they realize the incom…
-taxpayers must receive an economic benefit (i.e. receive an…
(1)a taxpayer engages in a transaction with another party, an…
gross income
gross income means all income from whatever source derived, u…
taxpayers recognize gross income when:
(1)they receive an economic benefit... (2)they realize the incom…
29 terms
Tax Chapter 5
What is included in gross income?
Taxpayers recognize gross income when…
Return of Capital Principle
Tax Benefit Rule
- All income from any source derived
1). They receive an economic benefit... 2). The income is reali…
- Allows taxpayers to reduce the sale proceeds by their unrec…
- Requires a taxpayer to include a refund of a business expen…
What is included in gross income?
- All income from any source derived
Taxpayers recognize gross income when…
1). They receive an economic benefit... 2). The income is reali…
11 terms
Tax Chapter 5
Wanda owns and operates a restaurant o…
All of the following are a required te…
Tom, dick, harry have a partnership. I…
Clay incurs $5,000 of investment expen…
13,600
GAAP approved
186,000 = (800,000-440,000)/2=180,000+(26,000-14,000/2)
1,500
Wanda owns and operates a restaurant o…
13,600
All of the following are a required te…
GAAP approved
51 terms
Tax Chapter 5
does the code define ordinary or neces…
courts view on necessary business expe…
an expense is ordinary if....
does an expense need to be recurring t…
no
an expense is necessary if a prudent businessperson would inc…
it is normal, or customary in the type of business conducted…
no
does the code define ordinary or neces…
no
courts view on necessary business expe…
an expense is necessary if a prudent businessperson would inc…
28 terms
Tax Chapter 5
what are the 3 criteria to recognize g…
what is the realizable income?
what is wherewithal to pay?
what is a tax basis in terms of calcul…
1. they receive an economic benefit (you're better off) ... 2. i…
taxpayer engages in a transaction with another party and the…
you won't get taxed on money if you don't have the funds to p…
it is the cost you paid to obtain the asset. the original inv…
what are the 3 criteria to recognize g…
1. they receive an economic benefit (you're better off) ... 2. i…
what is the realizable income?
taxpayer engages in a transaction with another party and the…
34 terms
Tax Chapter 5
Paid days are off are (gross income)
Furniture given to employees is includ…
For annuties each payment includes a
annuity exclusion ratio
included in gross income in total not in net
Yes
Taxable and Nontaxable portion
Original investment/ Expected value of annuity
Paid days are off are (gross income)
included in gross income in total not in net
Furniture given to employees is includ…
Yes
23 terms
Tax Chapter 5
Community property laws only matter if…
What is the difference between *commun…
If couples file a joint tax return (…
Income type:... *compensation for SERVICE…
MFS (Married filing separately)
community property systems MFS... -income earned from *service…
.
income from labor. Payments for salary include salary, wages,…
Community property laws only matter if…
MFS (Married filing separately)
What is the difference between *commun…
community property systems MFS... -income earned from *service…
22 terms
Chapter 5 Tax
How to apply for an EIN
When to get a new number
o Federal Income Tax Withholding... • Mus…
Social Security Taxes
Fill out application SS4 either online or via fax. Determine…
• You incorporate your sole proprietorship or partnership.... •…
• the employee's filing status (single, married, or married b…
FICA You must withhold the employee's share of the Social Sec…
How to apply for an EIN
Fill out application SS4 either online or via fax. Determine…
When to get a new number
• You incorporate your sole proprietorship or partnership.... •…
97 terms
Tax Chapter 5 and 6
All tax deductions are a matter of
Deductions are part of Congress' appro…
All deductible amounts fall into one o…
Two primary types of deductions allowed
Legislative Grace
Ability-to-Pay
Business Expenses... Losses ... Other Itemized Deductions
Deductions for adjusted gross income... Deductions from adjusted…
All tax deductions are a matter of
Legislative Grace
Deductions are part of Congress' appro…
Ability-to-Pay
8 terms
Chapter 5: Tax Planning
Know what your goal should be in relat…
Know the different types of taxes
Know the proportion of total income th…
Know what items are totally deductible
Legally minimize the amount of money you pay in taxes in orde…
Taxes on Purchases... Taxes on Property... Taxes on Wealth... Taxes on…
More than food, clothing, and medical care combined
Charitable contributions (tithing)... Qualified home mortgage in…
Know what your goal should be in relat…
Legally minimize the amount of money you pay in taxes in orde…
Know the different types of taxes
Taxes on Purchases... Taxes on Property... Taxes on Wealth... Taxes on…
31 terms
Mason Tax Chapter 5
Conditions for taxable income
Realized income
Recognized income
Forms of income
1) Economic benefit... 2) Realization of income... 3) Recognition o…
1) TP engages in a transaction... 2) Transaction results in meas…
Means that it is noted on the tax return as income
1) cash... 2) Services (fair market value)... 3) Property (fair mar…
Conditions for taxable income
1) Economic benefit... 2) Realization of income... 3) Recognition o…
Realized income
1) TP engages in a transaction... 2) Transaction results in meas…
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