Tax Accounting Chapter 5.

What is the broad definition of gross income? - All income from whatever source derived, unless excluded by law. Includes income realized in any form, whether in money, property, or services Taxpayers must received ______ to have gross income? - Economic benefit - receive an item of value What is the realization principle? - Income is realized when (1) a taxpayer engages in a transaction with another party, and (2) the transaction results in a measurable change in property rights What does wherewithal to pay mean? - the transaction provides the taxpayer with the funds to pay taxes on income generated by the transaction What is the tax benefit rule? - Including a refund that was made for an expenditure deducted in a previous year, with gross income in the current year (only when it produced a tax benefit) Unlike corporations, individuals use what type of accounting? - Cash - they recognize income in the period they receive it, rather than when they actually earn it