Chapter 4 Notes
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This 2 page One Day of Notes was uploaded by Jacqueline Romero on Sunday February 1, 2015. The One Day of Notes belongs to AGEC 456 at Purdue University taught by Gerald A. Harrison in Spring2015. Since its upload, it has received 199 views. For similar materials see Federal Income Tax Law in Music at Purdue University.
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Date Created: 02/01/15
Chapter 4 Gross Income Concepts and Inclusions Gross Income all income from whatever source derived Supreme Court made it clear that all sources of income are taxable unless Congress speci cally excludes it Not limited to cash it can be property services meals accommodations or stock Recovery of capital doctrine There is no income that is taxable unless the person has recovered the capital invested lncome represents an increase in wealth that is acknowledged for tax purposes Taxable Year Annual accounting period Fiscal year may be used for tax purposes if the company keeps adequate books and records Accounting Methods 3 Primary Methods 1 Cash receipts and disbursements Most individuals use this one a Property or services received are included in the taxpayers gross income in the year of constructive receipt regardless of whether the income was earned in that year b So if you receive a note a promise to pay for services than you have income for the year But If there is no note and just a mere promise to pay than it is not considered 2 Accrual Method Most large corporations use this one a An item is included in gross income in the year it is earned is doesn39t matter if it has been collected or not b Income is earned when the service has been completed and the amount owed can be determined with reasonable accuracy 3 Hybrid Method Some businesses use a A combination of 1 amp 2 b Typically when this method is used it means inventory is a material income producing factor The taxpayer used the accrual method for inventory and cash method for all other income expenses Dividends and interest income The IRS has the power to assign any accounting method to the taxpayer Constructive Receipt if the income is available then you must recognize the income This does not cover income that the taxpayer is not entitled to receive Original Issue Discount the difference between the amount due at maturity and the original loan You are required to report the original issue discount when it is earned regardless of which account method you chose Series E Pre 1980 amp Series EE Bonds Post 1979 lncome from these is deferred until the bonds are redeemed or they mature Prepaid Income is shown as a liability of the seller