Ch. 5 Flashcards

Question	Answer
Gross Income	Income that taxpayers realize, recognize, and report on their tax returns for the year. Or Realized income minus excluded and deferred income
Realization Principle	The proposition that income only exists when there is a transaction with another party resulting in a measurable change in property rights.
Wherewithal to Pay	The ability or resources to pay taxes due from a particular transaction
Barter Clubs	Organizations that facilitate the exchange of rights to goods and services between members
Tax Basis	the amount of a taxpayer's unrecovered cost of or investment in an asset
Return of Capital	The portion of proceeds from a sale (or distribution) representing a return of the original cost of the underlying property
Tax Benefit Rule	Holds that a refund of an amount deducted in a previous period is only included in income to the extent that the deduction reduced taxable income
Accrual Method	the procedure for determine the taxable year in which a business recognizes a particular item of income or deduction, thereby dictating the timing of when a taxpayer reports income and deductions
Cash Method	the method of accounting that recognizes income in the period in which cash, property, or services are received and recognizes deductions in the period paid.
Constructive Receipt Doctrine	The judicial doctrine that provides that a taxpayer must recognize income when it is actually or constructively received. Constructive receipt is deemed to have occurred if the income has been credited to the taxpayer's account or if the income is unconditionally available to the taxpayer, the taxpayer is aware of the income's availability, and there are no restrictions on the taxpayer's control over income.
Claim of right doctrine	Judicial doctrine that states that income has been realized if a taxpayer receives income and there are no restrictions on the taxpayer's use of the income.
Assignment of income doctrine	The judicial doctrine holding that earned income is taxed to the taxpayer providing the service, and that income from property is taxed to the individual who owns the property when the income accrues
Community Property Systems	Systems in which state laws dictate how the income and property are legally shared between a husband and a wife
Earned Income	Compensation and other forms of income received for providing goods or services in the ordinary course of business
Unearned Income	Income from property that accuses as time passes without effort on the part of the owner of the property
Annuity	Stream of equal payments over time
Flow-through entities	Legal entities, like partnerships, limited liability companies, and S corporations, that do not pay income tax. Income and losses flow through entities are allocated to their owners.
Alimony	A support payment of cash made to a former spouse. The payment must be made under a written separation agreement or divorce decree that does not designate the payment as something other than alimony, the payment must be made when the spouses do not live together, and the payments must cease no alter than when the recipient dies.
Imputed Income	Income fro an economic benefit the taxpayer receives indirectly rather than directly. The amount of the income is based on comparable alternatives.
Discharge of indebtedness	Debt forgiveness
Nonrecognition Provisions	Tax laws that allow taxpayers to permanently exclude income from taxation or to defer recognizing realized income until a subsequent period
Municipal Bonds	The common name for state and local government debt
Fringe Benefits	Non-cash benefits provided to an employee as a form of compensation. As a general rule, fringe benefits are taxable. However, certain fringe benefits are excluded from gross income.
Accountable Plan	An employer's reimbursement plan under which employees must submit documentation supporting expenses to receive reimbursement and reimbursements are limited to legitimate business expenses.
Gift	Transfer of property where no, or inadequate consideration is paid for the property
Inheritance	Transfer of property when the owner is deceased (the transfer is made by the decedents estate).
Accelerated death benefits	Early receipt of life insurance proceeds that are not taxable under certain circumstances, such as the taxpayer is medically certified with an illness that is expected to cause death within 24 months.
Disability Insurance	Sometimes called sick pay or wage replacement insurance. It pays the insured for wages lost due to injury or disability
Installment Sales	Sales for which taxpayers receive payment in more than one period
Qualified Retirement Account	Plans meeting certain requirements that allow compensation placed in the account to be tax-deferred until the taxpayer withdraws money from the account.

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	Created by HANNAH BRUNA over 2 years ago