Tax chapter 5 text book notes
Under the realization principle, income is realized when 2 things occur:
1.) a taxpayer engages in a transaction with another party 2) the transaction result is in a measurable change in property rights
Tax payers must receive an ____ _____ to have gross income.
Economic benefit
____ ____ is the amount of a taxpayers unrecovered cost of or investment in an asset.
Tax basis
____ ____ ____ holds that a refund of an amount deducted in a previous period is only included in income to the extent that the deduction reduced taxable income.
Tax benefit rule
The general definition of gross income is states as "Gross income means all income from _____ _____ _____."
Whatever source derived
Earnings on investments in plans such as 529 plans, Coverdell savings accounts, and U.S. Series EE bonds are excluded from taxation if the proceeds are used for qualifying _____ expenses.
educational
For non-government employees working outside the United States, there is a foreign-earned income ______ available if certain residency requirements are met.
exclusion
True or false: In general, prizes awarded to taxpayers are excluded from gross income.
false
True or false: Taxpayers who do not meet the resident requirement or live in a foreign country for at least 330 consecutive days in a 12 month period are NOT eligible to receive ANY of the foreign-earned income exclusion on otherwise eligible income.
false
_______ _____ income from an economic benefit the taxpayer receives indirectly rather than directly. The amount of the income is based on comparable alternatives.
imputed income
For a divorce agreement entered into BEFORE January 1, 2019, alimony is Blank______
included in the gross income of the person receiving it and deductible by the person paying it
Any reimbursement a taxpayer receives from a medical or accident insurance policy for medical expenses paid by the taxpayer during the current year are _______ for the taxpayer.
nontaxable
In general, life insurance proceeds are ________ to the beneficiary of the policy.
nontaxable
n personal injury cases, any damages awarded due to _______ injury are exempt from taxation.
physical
True or false: Income and deductions from a partnership or S corporation are taxed on the owners' tax returns rather than the entity tax return.
true
True or false: Income and deductions generated within a partnership or S corporation that are subject to various tax treatments (i.e. qualified dividends, capital gains, etc.) retain their character when they flow-through to the owners rather than being reclassified as ordinary income or loss.
true
True or false: Punitive damages are generally fully taxable to the recipient.
true
______ ______ is income that taxpayers realize, recognize, and report on their tax returns for the year.
Gross income
The earnings on a _____ plan are NOT taxable to the beneficiary if the distributions from the account are used to pay qualified higher education expenses.
529
____ of _____ _____ the judicial doctrine holding that earned income is taxed to the taxpayer providing the service, and that income from property is taxed to the individual who owns the property when the income accrues.
Assignment of income doctrine
_____ ____ are organizations that facilitate the exchange of rights to goods and services between members.
Barter clubs
_____ ____ is the method of accounting that recognizes income in the period in which cash, property, or services are received and recognizes deductions in the period paid.
Cash method
The ___ of ____ ____ judicial doctrine that states that income has been realized if a taxpayer receives income and there are no restrictions on the taxpayer's use of the income.
Claim of right doctrine
What are some examples of gross income?
Compensation for services, business income, rents, royalties, interest, and dividends.
Common examples of economic benefit include:
Compensation for services, proceeds from property sales, and income from investments or business activities.
Taxpayers who realize an economic benefit must ______ the benefit in gross income unless it is specifically ______ by the tax code.
Include/ Excluded
_____ ______ the proposition that income only exists when there is a transaction with another party resulting in a measurable change in property rights.
Realization principle
_____ __ _____ is the portion of proceeds from a sale (or distribution) representing a return of the original cost of the underlying property.
Return of capital
_______ ____ ____ is the ability or resources to pay taxes due from a particular transaction.
Wherewithal to pay
In addition to receiving a salary from a company, many employers provide _____ _____ that are excluded from gross income.
fringe benefits
If a taxpayer cashes out a life insurance policy before death due to a chronic illness, she may exclude from income the amount used to pay for her ______ - _______ _____.
long-term care