• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/70

Click to flip

70 Cards in this Set

  • Front
  • Back
What is the test for identifying if something is gross income?
-an undeniable succession to wealth
-clearly realized
-TP has total dominion over $
How do you determine the amount of income from treasure trove?
fair market value in the year when the property is reduced to TP possession
How do you determine the amount of income from exchange of services?
the fair market of services received
Is $ received as a loan included as gross income?
No, there is an obligation to repay
What are the 2 exceptions for the exclusion of prizes and awards from income?
prizes and awards are generally included as gross income

if a prize is transferred directly to charity with no future obligations of service

OR

a limited employment achievement award under S74
When is a scholarship excluded from gross income?
the amount of $ used for tuition and related expenses is excluded

the amount of $ for living expenses or services in teaching or research are included
What damages are included as gross income?
-punitive damages
-damages from strictly non-physican injuries (i.e. IIED)
What is adjusted gross income (AGI)?
gross income - above-the-line deductions
What is taxable income?
AGI - below-the-line deductions and personal exemptions
What are above-the-line deductions?
-these deductions are subtracted from gross income

-everyone gets these deductions to calculate AGI
What are below-the-line deductions?
these deductions are subtracted from AGI (itemized deductions or the standard deduction)
What are examples of itemized deductions?
-unreimbursed employee expenses for travel, meals, entertainment, etc.
-expenses for the production of income
What is the rule concerning miscellaneous itemized deductions?
-subtracted only to the extent cumulatively exceed 2% AGI

-these deductions are limited once AGI reaches a certain amount
What is a tax credit?
a dollar for dollar reduction of taxable income
What is a capital gain?
profit from the sale or exchange of a capital asset
When is a scholarship excluded from gross income?
-the amount of $ used for tuition and related expenses is excluded

-the amount of $ for living expenses or services in teaching or research is included
What damages are included as gross income?
-punitive damages
-damages from strictly non-physical injuries (i.e. IIED)
What is taxable income?
AGI - below-the-line deductions and personal exemptions
What property is not considered a capital asset?
-inventory,
-property used in trade or business,
-copyrights,
-accounts or notes receivables,
-hedging transactions,
-supplies used in ordinary course of business

(any property held by TP, regardless if used in trade or business, is considered a capital asset)
What is a hedging transaction?
if the asset is "integral part" of TP trade or business
What is the general rule concerning ordinary income and capital gains?
property for business use = ordinary income

property for investment = capital gains
What is the difference between long-term gain and short-term gain?
LONG-TERM GAIN occurs with the sale or exchange of property held for more than 1 year, while SHORT-TERM GAIN occurs with the sale or exchange held for less than 1 year
What is depreciation?
annual deduction for "wear and tear" of property with a limited useful life that is used in trade or business or production of income
How do depreciation and improvement affect basis?
depreciation adjusts basis downward

improvement adjusts basis upward
How are gains and losses determined?
amount realized - adjusted basis
What is amount realized?
any money received + FMV of any property received
What is the basis of inherited property?
the fair market value at the time of the decedent's death
What is the basis of a gift?
the donee takes the basis of the donor

*if the basis is greater than the fair market value at the time of the gift, then loss is determined using the fair market value
What is the difference between a recourse and non-recourse loan?
a RECOURSE LOAN makes the TP personally liable

a NON-RECOURSE LOAN does not impose personal liability on a TP
How are gifts determined?
the motives/intent of the payor

a detached and disinterested generosity or affection, respect, or like impulses is a gift
What are the 5 fringe benefits that are excluded from gross income?
-qualified employee discount
-de minimis benefit
-working conditions benefit
-no additional cost services
-qualified transportation benefit
What is the Lighthouse Keepers' exception for deducting meals and lodging from gross income?
where lodging and meals are provided on the employer's premises, for the convenience of the employer, and (for lodging) as a condition of employment
What deductions are permitted for trade and business expenses?
ordinary and necessary expenses paid or incurred while carrying on in trade or business
What are the requirements for a deduction for expenses for lodging incurred while traveling in connection with trade or business?
the stay must be temporary (less than 1 year) and the trip reasonably requires TP to sleep or rest
What are the requirements for a deduction for expenses for meals incurred while traveling in connection with trade or business?
-the meal must be directly related to or associated with TP trade or business (business during, before, or after the meal) and the TP must be present at the meal

-if eating alone, the meal should not be lavish and staying overnight
What are the requirements for deductions for expenses for entertainment incurred while traveling in connection with trade or business?
-no deductions are permitted for facilities (i.e. membership to a country club)

-the cost of activities at a facility are deductible if conducted in connection to TP trade or business

-tickets are limited to face value
What rules apply to deductions for travel, meals, or lodging incurred in connection to TP trade or business?
-a record of expenses is required
-deductions are limited to 50% of total $ spent
How is a trade or business identified?
the primary purpose of the activity is income and there is a continuity of the activity
What is "carrying on"?
in the course of; connection with the trade or business
What are the public policy exceptions for dedutions?
-illegal bribes or kickbacks
-campaign contributions
-fines/penalties paid to government
-any illegal drug dealer business expenses
Commuting expenses are generally not deductible. What are exceptions to this rule?
-any travel between regular workplace and temporary workplace
-any travel between home and temporary workplace
Grooming expenses are generally not deductible as a personal expense. What is the exception to this rule?
-the clothing is condition of employment
-the clothing is not adaptable to general use
Education expenses are generally not deductible. What is the exception to this rule?
if the education is to maintain or improve skills required in the current trade or business (TP must be currently employed in the trade or business to qualify)
When are the expenses for a home office deductible?
-the home office is the principal place of business (used to meet with customers/clients/patients)
-home office used for administrative work
-home office used for storage of inventory
What personal residence loans qualify for interest deductions?
-acquisition indebtedness
-home equity indebtedness
-points in full the year paid
What is acquisition indebtedness?
secured by residence itself and the deduction does not exceed the adjusted basis AND the loan does not exceed $1 million
What is home equity indebtedness?
deduction if loan does not exceed $100,000 or the FMV of home minus acquisition indebtedness
What is a capital expenditure?
purchase of property whose useful life extends beyond 1 year (if the useful life extends less than 1 year, the expense is ordinary)
What are items included in capital expenditures?
-costs incurred in acquisition or improvement of real or tangible personal property
-start up expenditures
-certain intangibles S197
What assets must be depreciated using the straight-line method?
non-residential real property
residential real property
intangibles
start-up expenditures
What is the holding period for automobiles?
5 years
What is the holding period for non-residential real property?
39 years
What losses are recognized by the IRS?
-losses incurred in trade or business
-losses incurred in transaction entered into for profit
-losses to property from theft or catastrophe
What are bad debts?
debt owed by a 3rd party to TP that become worthless
How are business bad debts and non-business bad debts treated differently?
-BUSINESS BAD DEBTS arise from TP trade or business and are treated as ordinary loss

-NON-BUSINESS BAD DEBTS arise from personal or investment activities and are treated as short term capital losses
What are capital gains and losses?
losses from sales/exchanges of capital assets allowed only to extent of gains from such sales/exchanges
What is the most important question to ask regarding capital gains and losses?
How long did the TP hold the asset before the sale/exchange?
What kind of property is inherited property?
long-term property
What are quasi-capital assets?
depreciable property and real property used in trade or business and held for longer than 1 year
How is a transaction treated if it results in net capital gain?
the transaction is treated as long-term capital transaction (if the property is sold at loss, the transaction is treated as ordinary loss)
How is net capital gain calculated?
short term gains - short term losses

long term gains - long term losses

*if net long term gains exceed net short term losses, there is a net capital gain
**if net capital loss, the loss is deductible only against capital gains + $3,000/yr.
***any remaining capital losses are carried over to next year

if net capital gain, receives special treatment
What is the cash receipt method of accounting?
income when payment received by TP and deduction when payment made by TP
What is the accrual method of accounting?
income when TP has right to receive and deduction when TP liable to pay
When can a TP using the accrual method make a deduction?
-when economic performance occurs (services provided, property provided to TP, TP uses property, workmen's comp. paid)

AND

-"all events test" of liability determined and amount determined with reasonable accuracy
When is income earned by a TP using accrual method of accounting?
when TP has right to receive and the amount determined with reasonable accuracy
What is the installment method of accounting?
report gain at the same rate as payments received that only applies to sales of property resulting in gain
What is an installment sale?
any disposition of property where at least 1 payment received after close of taxable year
What is a like-kind exchange?
property held for trade or business exchanged (or swapped) for like property
What type of deductions (above or below the line) are S162 deductions?
above-the-line deductions
How are S1231 assets treated for gains and losses?
-treated as capital gain if sold for gain

-treated as ordinary loss if sold for loss