Federal Taxation - Exam 2 Questions &
Answers 100% Solved!!
Basic Income Tax Formula - ANSWERSAll Income
- Exclusions
= Gross Taxable Income
- Deductions
= Taxable Income
Tax
- Tax Credits
- Tax Payments
= Net Tax Due or Net Tax Refund
Gross Income - IRC Section 61 - ANSWERS"Gross income means all income from
whatever source derived"
Gross Income - US Treasury Regulation Section 1.61-(A) - ANSWERS"Gross income
includes all income realized in any form, whether in money, property or services"
When are taxpayers to recognize gross income? - ANSWERS1. They receive an
economic benefit,
2. They realize the income, and
3. The law does not specifically provide for an exclusion or deferral of the income.
Do forms of receipt matter? - ANSWERSNo...
ABC Company permits an employee to use a company car for his vacation. Does the
employee realize any income?
Yes, equal to the fair rental value of the car for time and mileage.
A CPA prepares a tax return for her neighbor, who happens to be a dentist. The dentist
provides the CPA with "free" dental checkups in exchange for the CPA providing a
"free" tax return. Does either party have income?
Yes, both have income equal to the fair market value of the services provided.
3 types of taxable years - ANSWERScalendar, fiscal, 52/53 week
Calendar Year - ANSWERS12 months ending on December 31st
, Fiscal Year - ANSWERS12 months ending on the last day of any month other than
December
3 types of accounting methods - ANSWERScash receipts, accrual, hybrid
Cash Receipts Method - ANSWERSBased upon year of actual/contructive
receipt/payment
Accrual Method - ANSWERSIncome when earned; expenses when incurred
Hybrid Method - ANSWERSCombination of cash receipt & accrual
Cash basis taxpayers must generally use a... - ANSWERSCalendar year end
Corporations may elect... - ANSWERSAny fiscal year they choose
Pass-Through entities must generally... - ANSWERSElect the same year end as that of
the majority of their ownership
The accounting method that a taxpayer uses must... - ANSWERSClearly reflect income
What is the special rule for cash basis taxpayers? (POTENTIAL SHORT ANSWER) -
ANSWERSConstructive Receipt - prevents a taxpayer from deferring income
recognition by refusing to accept payment when the payment is practically available.
*does not mean that you cannot plan your income
Income from Personal Services - ANSWERSTaxable to the person who performs the
services
Employer Services - ANSWERSServices performed by employees for customers of the
employer are taxable to the employer. The employer is source of that income because
the employer contracts or negotiates with the customer for the value of the services.
Business Income from Services
Employee Services - ANSWERSServices performed by an employee in return for
compensation are taxable to the employee. The employee has agreed to perform
services in return for a certain amount of compensation.
Personal income from services
Income from Property - ANSWERSIncluded in the gross income of the owner of the
property.
Interest - ANSWERSpayment for borrowing money
Answers 100% Solved!!
Basic Income Tax Formula - ANSWERSAll Income
- Exclusions
= Gross Taxable Income
- Deductions
= Taxable Income
Tax
- Tax Credits
- Tax Payments
= Net Tax Due or Net Tax Refund
Gross Income - IRC Section 61 - ANSWERS"Gross income means all income from
whatever source derived"
Gross Income - US Treasury Regulation Section 1.61-(A) - ANSWERS"Gross income
includes all income realized in any form, whether in money, property or services"
When are taxpayers to recognize gross income? - ANSWERS1. They receive an
economic benefit,
2. They realize the income, and
3. The law does not specifically provide for an exclusion or deferral of the income.
Do forms of receipt matter? - ANSWERSNo...
ABC Company permits an employee to use a company car for his vacation. Does the
employee realize any income?
Yes, equal to the fair rental value of the car for time and mileage.
A CPA prepares a tax return for her neighbor, who happens to be a dentist. The dentist
provides the CPA with "free" dental checkups in exchange for the CPA providing a
"free" tax return. Does either party have income?
Yes, both have income equal to the fair market value of the services provided.
3 types of taxable years - ANSWERScalendar, fiscal, 52/53 week
Calendar Year - ANSWERS12 months ending on December 31st
, Fiscal Year - ANSWERS12 months ending on the last day of any month other than
December
3 types of accounting methods - ANSWERScash receipts, accrual, hybrid
Cash Receipts Method - ANSWERSBased upon year of actual/contructive
receipt/payment
Accrual Method - ANSWERSIncome when earned; expenses when incurred
Hybrid Method - ANSWERSCombination of cash receipt & accrual
Cash basis taxpayers must generally use a... - ANSWERSCalendar year end
Corporations may elect... - ANSWERSAny fiscal year they choose
Pass-Through entities must generally... - ANSWERSElect the same year end as that of
the majority of their ownership
The accounting method that a taxpayer uses must... - ANSWERSClearly reflect income
What is the special rule for cash basis taxpayers? (POTENTIAL SHORT ANSWER) -
ANSWERSConstructive Receipt - prevents a taxpayer from deferring income
recognition by refusing to accept payment when the payment is practically available.
*does not mean that you cannot plan your income
Income from Personal Services - ANSWERSTaxable to the person who performs the
services
Employer Services - ANSWERSServices performed by employees for customers of the
employer are taxable to the employer. The employer is source of that income because
the employer contracts or negotiates with the customer for the value of the services.
Business Income from Services
Employee Services - ANSWERSServices performed by an employee in return for
compensation are taxable to the employee. The employee has agreed to perform
services in return for a certain amount of compensation.
Personal income from services
Income from Property - ANSWERSIncluded in the gross income of the owner of the
property.
Interest - ANSWERSpayment for borrowing money
