Accounting Periods and Methods

If a taxpayer filed their personal return using a calendar year basis, how must they report their share of partnership income/expenses?

On a calendar year basis as well. It does not matter if the partnership reports their income/expenses on a fiscal basis.

You can not deduct expenses in advance, even if you pay them in advance.

This applies to expenses paid that apply to more than 1 year. Unless the expense qualifies for the 12-month rule, the expense must be properly allocated to the year it applies to.

A corporation using the accrual method deducts only interest accrued during the tax year

This is so regardless if they actually paid the interest the following year.

Under the accrual method of accounting, what does it mean to take a deduction for taxes when economic performance occurs?

When something occurs that triggers the tax. **For example, when a company buys something and they have to pay a future usage tax; they can take the deduction now instead of when they actual pay that tax.

Under the accrual method of accounting, how are advanced payments received by a business handled?

You can postpone including the advance payments in income until the next year.

If your business operates under the accrual method, you must report income when all events occur to fix the right to receive it, even if you eventually don't receive the money in the future.

You will need to have reported it to be able to claim it as a bad debt in a future year.

The year is 2020, you operate a business that uses the cash basis of accounting. You just received a 2017 receivable that was previously uncollected. What year would you report that as income?

2020.

In regards to partnerships, the related party rule applies if an officer owns more than %__ of the partnership.

50%.

The following entities are not allowed to use the cash method of accounting:

A corporation or partnership with average annual gross receipts of $26 million A tax shelter

A fiscal year is a 12-month period that falls on the last day of any month except December.

It has to end on the last day of the month, however. For example, a fiscal year can not end on April 15th.

If you have a business and you use the cash basis of accounting, uncollected receivables for that year would not be considered income.

It would not be reported as income until the year it is actually received.

A cash basis taxpayer reports income in the year it was ________.

received.

What is a fiscal year?

A year that can start and end at any point during the year, as long as it comprises a full 12 months.

What is Form 1128?

Application To Adopt, Change, or Retain a Tax Year

What is Form 3115?

Application for Change in Accounting Method. This is required to request a change in accounting method (cash->accrual or vice versa) or the accounting treatment of any item.

If you use the cash method for reporting your income, you have to use the _____ method for reporting expenses.

cash method. The same is true for the accrual method.

Under the accrual method of accounting, you generally report the income in the tax year you _______ it, regardless of when payment was received.

earned