504: Slide deck 4, Income sources and Exclusions
504: Slide deck 4, Income sources and Exclusions MGMT 504
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This 2 page One Day of Notes was uploaded by Emily McIlhattan on Thursday February 5, 2015. The One Day of Notes belongs to MGMT 504 at Purdue University taught by Jason Stanfield in Winter2015. Since its upload, it has received 135 views. For similar materials see Tax Accounting in Accounting at Purdue University.
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Date Created: 02/05/15
MGMT 504 Slide Deck 4 Income Sources and Exclusions Last Lecture I Personal and Dependency Exemptions II Types of Dependents a Qualifying child i Five tests b Qualifying Relative i Five tests Current Lecture Outline I Income Sources II Exclusions Current Lecture I Income sources a Gross Income includes all income from whatever sources derived unless speci cally excluded under the Code i Concept is interpreted broadly by the courts it is a positive increase in form andor substance of the taxpayer s property and involves a second party in the process ii Do not assume cash is only thing that matters 1 Barter just because transactions form is barter doesn t mean its not taxed the amount of income is equal to the FMV of the property or services 2 EX Tire a From Stan eld under reports income by 400 b For Tire Store Owner under reports income by 250 over reports COGS by his cost of the tires b Accounting periods in tax the scal year is a 12month period ending on the last day of a month other than December but must be the last day i Cash Method income is recognized in the year it is actually or constructively received in cash or cash equivalent avaiabe and you could have it 1 When future tax rate is lower than your current tax rate an incentive arises to defer the recognition of income iii iv vi vii viii ix Accrual Method income is recognized in the year it is earned regardless of when it is collected even cash basis taxpayers have to do full absorption costing 1 Claim of right doctrine if you got the cash you got the taxes if a refund on money they paid we still pay then ask for the refund 2 Exception advance payment for services to be performed after yearend is included in income in the year following receipt Earned Income compensation for labor or services Unearned income you money earns it from capital Annuity comparable to life insurance you give us money and they give you monthly payments based off how long you will live Exclusion Ratio investment in contract expected return under contract gross return capital recovery is in both the denominator and numerator Simpli ed Method use a table for lifespan very rough estimate based off the taxpayers age when they start receiving payments is how you determine the lifespan Alimony spousal payments 1 Deductible by payor 2 Taxable for payee Child Support child care 1 Taxable for both
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