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70 Cards in this Set
- Front
- Back
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What is the test for identifying if something is gross income?
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-an undeniable succession to wealth
-clearly realized -TP has total dominion over $ |
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How do you determine the amount of income from treasure trove?
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fair market value in the year when the property is reduced to TP possession
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How do you determine the amount of income from exchange of services?
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the fair market of services received
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Is $ received as a loan included as gross income?
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No, there is an obligation to repay
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What are the 2 exceptions for the exclusion of prizes and awards from income?
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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 |
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When is a scholarship excluded from gross income?
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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 |
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What damages are included as gross income?
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-punitive damages
-damages from strictly non-physican injuries (i.e. IIED) |
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What is adjusted gross income (AGI)?
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gross income - above-the-line deductions
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What is taxable income?
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AGI - below-the-line deductions and personal exemptions
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What are above-the-line deductions?
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-these deductions are subtracted from gross income
-everyone gets these deductions to calculate AGI |
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What are below-the-line deductions?
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these deductions are subtracted from AGI (itemized deductions or the standard deduction)
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What are examples of itemized deductions?
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-unreimbursed employee expenses for travel, meals, entertainment, etc.
-expenses for the production of income |
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What is the rule concerning miscellaneous itemized deductions?
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-subtracted only to the extent cumulatively exceed 2% AGI
-these deductions are limited once AGI reaches a certain amount |
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What is a tax credit?
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a dollar for dollar reduction of taxable income
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What is a capital gain?
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profit from the sale or exchange of a capital asset
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When is a scholarship excluded from gross income?
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-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 |
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What damages are included as gross income?
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-punitive damages
-damages from strictly non-physical injuries (i.e. IIED) |
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What is taxable income?
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AGI - below-the-line deductions and personal exemptions
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What property is not considered a capital asset?
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-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) |
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What is a hedging transaction?
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if the asset is "integral part" of TP trade or business
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What is the general rule concerning ordinary income and capital gains?
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property for business use = ordinary income
property for investment = capital gains |
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What is the difference between long-term gain and short-term gain?
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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
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What is depreciation?
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annual deduction for "wear and tear" of property with a limited useful life that is used in trade or business or production of income
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How do depreciation and improvement affect basis?
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depreciation adjusts basis downward
improvement adjusts basis upward |
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How are gains and losses determined?
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amount realized - adjusted basis
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What is amount realized?
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any money received + FMV of any property received
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What is the basis of inherited property?
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the fair market value at the time of the decedent's death
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What is the basis of a gift?
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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 |
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What is the difference between a recourse and non-recourse loan?
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a RECOURSE LOAN makes the TP personally liable
a NON-RECOURSE LOAN does not impose personal liability on a TP |
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How are gifts determined?
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the motives/intent of the payor
a detached and disinterested generosity or affection, respect, or like impulses is a gift |
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What are the 5 fringe benefits that are excluded from gross income?
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-qualified employee discount
-de minimis benefit -working conditions benefit -no additional cost services -qualified transportation benefit |
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What is the Lighthouse Keepers' exception for deducting meals and lodging from gross income?
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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
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What deductions are permitted for trade and business expenses?
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ordinary and necessary expenses paid or incurred while carrying on in trade or business
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What are the requirements for a deduction for expenses for lodging incurred while traveling in connection with trade or business?
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the stay must be temporary (less than 1 year) and the trip reasonably requires TP to sleep or rest
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What are the requirements for a deduction for expenses for meals incurred while traveling in connection with trade or business?
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-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 |
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What are the requirements for deductions for expenses for entertainment incurred while traveling in connection with trade or business?
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-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 |
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What rules apply to deductions for travel, meals, or lodging incurred in connection to TP trade or business?
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-a record of expenses is required
-deductions are limited to 50% of total $ spent |
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How is a trade or business identified?
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the primary purpose of the activity is income and there is a continuity of the activity
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What is "carrying on"?
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in the course of; connection with the trade or business
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What are the public policy exceptions for dedutions?
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-illegal bribes or kickbacks
-campaign contributions -fines/penalties paid to government -any illegal drug dealer business expenses |
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Commuting expenses are generally not deductible. What are exceptions to this rule?
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-any travel between regular workplace and temporary workplace
-any travel between home and temporary workplace |
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Grooming expenses are generally not deductible as a personal expense. What is the exception to this rule?
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-the clothing is condition of employment
-the clothing is not adaptable to general use |
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Education expenses are generally not deductible. What is the exception to this rule?
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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)
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When are the expenses for a home office deductible?
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-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 |
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What personal residence loans qualify for interest deductions?
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-acquisition indebtedness
-home equity indebtedness -points in full the year paid |
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What is acquisition indebtedness?
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secured by residence itself and the deduction does not exceed the adjusted basis AND the loan does not exceed $1 million
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What is home equity indebtedness?
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deduction if loan does not exceed $100,000 or the FMV of home minus acquisition indebtedness
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What is a capital expenditure?
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purchase of property whose useful life extends beyond 1 year (if the useful life extends less than 1 year, the expense is ordinary)
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What are items included in capital expenditures?
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-costs incurred in acquisition or improvement of real or tangible personal property
-start up expenditures -certain intangibles S197 |
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What assets must be depreciated using the straight-line method?
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non-residential real property
residential real property intangibles start-up expenditures |
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What is the holding period for automobiles?
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5 years
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What is the holding period for non-residential real property?
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39 years
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What losses are recognized by the IRS?
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-losses incurred in trade or business
-losses incurred in transaction entered into for profit -losses to property from theft or catastrophe |
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What are bad debts?
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debt owed by a 3rd party to TP that become worthless
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How are business bad debts and non-business bad debts treated differently?
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-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 |
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What are capital gains and losses?
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losses from sales/exchanges of capital assets allowed only to extent of gains from such sales/exchanges
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What is the most important question to ask regarding capital gains and losses?
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How long did the TP hold the asset before the sale/exchange?
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What kind of property is inherited property?
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long-term property
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What are quasi-capital assets?
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depreciable property and real property used in trade or business and held for longer than 1 year
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How is a transaction treated if it results in net capital gain?
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the transaction is treated as long-term capital transaction (if the property is sold at loss, the transaction is treated as ordinary loss)
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How is net capital gain calculated?
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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 |
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What is the cash receipt method of accounting?
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income when payment received by TP and deduction when payment made by TP
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What is the accrual method of accounting?
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income when TP has right to receive and deduction when TP liable to pay
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When can a TP using the accrual method make a deduction?
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-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 |
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When is income earned by a TP using accrual method of accounting?
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when TP has right to receive and the amount determined with reasonable accuracy
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What is the installment method of accounting?
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report gain at the same rate as payments received that only applies to sales of property resulting in gain
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What is an installment sale?
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any disposition of property where at least 1 payment received after close of taxable year
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What is a like-kind exchange?
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property held for trade or business exchanged (or swapped) for like property
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What type of deductions (above or below the line) are S162 deductions?
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above-the-line deductions
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How are S1231 assets treated for gains and losses?
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-treated as capital gain if sold for gain
-treated as ordinary loss if sold for loss |
