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31 Cards in this Set

  • Front
  • Back

Name the two accounting methods?

Cash and Accrual
What is the most common accounting period?
The calendar year. What is a fiscal year?
What is the accrual basis?
Income is accounted for as and when it is earned, whether or not it has been collected. When are expenses recognized under accrual accounting?
What is basis?

Basis is used mainly in connection with determining the amount of gain or loss on a sale of property in in computing depreciation. It represents the cost of the property to the taxpayer. What is adjusted basis?

What is income?
Income in its broadest sense, is the gain derived from capital, labor or both. It is distinguishable from the capital itself. Ordinarily for income tax purposes, the work income is not used alone. What is gross income?
What is adjusted gross income?

Adjusted gross income for an individual is gross income reduced by trade or business expenses, expenses for property held for production of rents or royalties and certain loss adjustments. What is taxable income?

What is the assignment of income doctrine?
The principle that income is taxed to the individual who earned it, even if the right to the income has been transferred to another prior to recognition.
What is a boot?
Boot is a term used to describe the other property received in an exchange which, but for such other property, would be nontaxable. Partial gain may be recognized from the receipt of such boot, not to exceed the fair market value of the boot. What can't be boot?
Is tax avoidance, a business purpose?
No. When a transaction occurs it must be grounded in a business purpose other than tax avoidance. Tax avoidance is not a proper motive for being in business. What is the difference between income tax avoidance and income tax evasion?
What is a capital asset?

Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, household furnishings, and stocks or bonds held in a personal account. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss. What is personal and real property?

What is a capital gain?
An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes. What is a capital loss?
Give an example of a capital asset of a business?
Machinery and Equipment

Is inventory a capital asset?
What is a NOL and what can are the carryback / carryforward rules for individuals?
Net operating loss incurred in the operation of a trade or business. A NOL may be carried back two years and carried forward 20 years. How do you carry an NOL backwards?
What is the cash basis of accounting?
Cash basis is one of two principal recognized method of accounting. (the other is accrual). It must be used by all taxpayers who don't keep books. It cannot be used by anyone who sells inventory and / or is a corporation, certain partnerships and exempt trusts. How does the cash basis work?
What is community property?
Some 9 states have community property laws which assume that property acquired by a husband and wife while married is shared equally and the income from that property is split equally. (AK, CA, NV, NM, AZ, ID, WA, LA, TX, & WI. (From Mexico) What do the other 41 states believe about a husband and wife's property?
What does cost mean for tax purposes?
The purchase price paid for property, or the value at which it is taken into income (as in the case of services paid for in property). It usually is used in the determination of a profit or loss (sale price - COST = gain or loss). It is also the figure most often used in determining the tax depreciation deduction. (COST X depreciation rate = depreciation deduction)
What is a tax credit? How is it different from a deduction?
A tax credit is an amount subtracted from the income tax liability (once you know the amount of taxes you should owe on your income). The tax credit is a reduction in the tax itself and in some cases is can be refundable if your credit exceeds your tax liability.
What is the difference between an exclusion and a deduction?
A deduction is a subtraction from gross income. It reduces the amount of income subject to tax. (Personal exemption, charitable contribution, medical expenses, casualty losses, state taxes and interest paid, etc.). What is an exclusion?
How is a tax refund different than a credit?
A tax credit is an amount subtracted from the income tax liability (once you know the amount of taxes you should owe on your income).
What is an entity and what are the four types of entities for tax purposes?
An entity can owe tax and pay tax and can file a tax return. What are the four types of entities?
What is earned income?
Earned income. Income earned by working for it. Interest, dividends and other kinds of profits are examples of unearned income. What is another name for "unearned income"?
What is a filing status? and how many are there?
Each filing status has its own rate table. Which filing status has the highest tax rates?
What is "Head of Household"?
A filing status available to qualifying single parents (or others supporting certain dependents) that allows lower taxes than the normal rates for singles.
What is the difference between "adjustments for" and "adjustments from" gross income or are they the same thing?
Adjustments for gross income are lines 23-35 on the 1040 that are subtractions from gross income that yield adjusted gross income.
List some adjustments FOR gross income
Deduction FOR AGI :
Trade or business deductions reported on schedule C, losses from sale or exchange of business property reported on schedule D, Deductions associated with rents or royalties reported on schedule E, teaching supplies, certain employee business expenses reported on Form 2106, Contributions to HSA, moving expenses, 50% deduction for self employment taxes, contributions to IRAs or Keoghs, Alimony payments , qualified student loan interest and qualified tuition and fees, Domestic production activities. What are deductions FROM adjusted gross income?
What is the standard deduction?
A deduction allowed individuals instead of listing or itemizing deductible personal expenses. (See "Itemized deductions.") The amount depends on the individual's filing status. Additional amounts are available for taxpayers who are blind or are age 65 or over. Individuals may deduct either their standard deduction or the total of their itemized deductions, whichever is greater.
What is the amount in 2011 and 2012?
How much is the personal exemption?
2012: $3,800
2011: $3,700
One for every qualified dependent on the tax return plus the filer(s).
What is it for?
What is a holding period?
A term used in tax usually associated with capital gains transactions. The length of time that property has ben held by a taxpayer. What is short-term and what is long-term?
What is Section 1245 Property? Must be held for 1 year or more.
Depreciable personal property and other depreciable property used in manufacturing, production or extractions or used in the business of transportation, communications and utilities(not buildings or their improvements). How are they treated differently for tax?
What is Section 1250 property? Must be held for 1 year or more
Depreciable or recoverable property that is not 1245 property. This would be tangible non 1245 property such as office building, apartment buildings, and intangible real property (leases of land, leases of buildings and their improvements), How is 1250 property different from 1245 property?
What is self employment income?
Income subject to self employment tax of 13.3% (social security of 10.4% and 2.9% medicare). Social Security is FICA and FUTA
What are the employer and employee payroll tax rates?