INCOME TAX ACCT I
INCOME TAX ACCT I ACCT 3221
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Arturo Hilll IV
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This 10 page Class Notes was uploaded by Arturo Hilll IV on Tuesday October 13, 2015. The Class Notes belongs to ACCT 3221 at Louisiana State University taught by L. Lowe-Ardoin in Fall. Since its upload, it has received 153 views. For similar materials see /class/223052/acct-3221-louisiana-state-university in Accounting at Louisiana State University.
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Date Created: 10/13/15
Chapter 4 Gross IncomezConcepts and Inclusions Gross Income 0 Gross income includes all income from Whatever source derived unless specifically excluded under the Code 0 Taxability of income follows the realization principle from accounting 0 Income is recognized Whether it is Recovery Of Capital Doctrine Dr Payne sells common stock for 15000 0 He had purchased the stock for 12000 Accounting Periods o Taxable year is generally a 12month period Accounting Methods 0 There are 3 primary methods of accounting for taX purposes 0 Taxpayers may choose elect taX treatment for various transactions Cash Receipts Method 0 Income is recognized in the year it is Constructive Receipt On December 31 Dr Payne has 10000 in patients39 checks that have not been deposited 0 One check for 3000 is from a patient Who asked him not to deposit it until after January 4th because her account did not contain sufficient funds to pay the debt How much income must Dr Payne recognize under the cash basis of accounting Exceptions T0 Cash Receipts Method 0 Original Issue Discount 01D 0 Series E and EE bonds are not subject to the OID rules Income Sources 0 Income from personal services is taxable to the person who performs the services 0 Income from property is taxable to the owner of the property 0 Interest income accrues daily Dividends o Dividends are generally taxed to the party who is entitled to receive them 0 Recent legislation has provided partial relief from double taxation of corporate dividends Income From Partnerships o A partnership is not a separate taxable entity Income From S Corporations 0 A small business corporation may elect to be taxed similarly to a partnership S Corporation Income From Estates And Trusts 0 Beneficiaries of estates and trusts Income In Community Property States 0 All property is deemed either to be separately owned by the spouse or to belong to the marital community 0 Separate property may produce community income eg TX LA Alimony and Separate Maintenance Payments 0 Alimony is 0 Payments may qualify as alimony if Payments are in Agreement or decree does not specify that the payments are Payor and payee are not members of the same household at the time the payments are made There is no liability to make the payments for any period after the death of the payee 0 Property settlements Transfer of property to No or for transferor No and of transferor s for transferee Frontloading of alimony payments Child support payments 0 May be difficult to determine Whether an amount received is alimony or child support If amount of payment would be reduced due to some future event related to the child eg child reaches age 21 such reduction is deemed child support Imputed Interest on BelowMarket Loans 0 Information will not be covered Annuity Income 0 Purchaser pays fixed amount for the right to receive a future stream of payments 0 For collections on and after the annuity starting date The exlusion ratio is applied to annuity payments received under contract to determine amount excludable Once investment is recovered remaining payments are taxable in full Examples Taxpayer pays 10000 for annuity that will pay 1000 a year 0 A For a term of 15 years 0 B For lifetime life expectancy 15 years Exclusion ratio for A amp B A 15 years of annuity payments B Lifetime payments and taxpayer lives 18 years B Lifetime payments and taxpayer lives 10 years Prizes and Awards 0 General rule FMV of item is included in income 0 Exceptions Group Term Life Insurance 0 Exclude premiums paid by employer on first 50000 of coverage Unemployment Compensation 0 Unemployment compensation is taxable in full Social Security Benefits 0 Up to 85 of benefits may be taxable o Taxability based on taxpayer s modified adjusted gross income MAGI 0 Two formulas for computing taxable benefits 0 Formula 1 If MAGI plus 12 of Social Security benefits exceeds the base amounts below but not the second set of base amounts I Include in income the I Base amounts 0 Formula 2 If MAGI plus 12 of Social Security benefits exceeds the base amounts below I Include in income the I Base amounts 0 Example of Social Security income A Married With AGI 30000 tax exempt interest income 3000 Social Security benefits 10000 B Married with AGI 40000 taX exempt interest income 6000 Social Security benefits 10000 A Formula 1 Lesser of 0 Therefore 3000 of Social Security benefits included in gross income B Formula 2 Lesser of
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