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REG
Income
92
Accounting
Undergraduate 4
01/16/2012

Additional Accounting Flashcards

 


 

Cards

Term
Constructive Receipt
Definition
requires a cash basis taxpayer to include the value of property in income in the period in which the right to (or control of) the property is acquired
Term
Tax Benefit Rule
Definition
requires a taxpayer to include an expense reimbursement in income if the expense was deducted in a prior period and the deduction reduced the taxpayer's taxable income
Term
Claim of right doctrine
Definition
requires taxpayer to include property in income in the period in which an apparent claim to the property materializes
Term
timing of interest income for cash basis
Definition
included in income when received
Term
timing of interest income for accrual basis
Definition
taxed when accrued
Term
timing of prepaid interest income
Definition
taxed when received
Term
bond premiums
Definition
taxpayer may elect to amortize premium and claim amortization as the deduction
Term
bond discounts
Definition
individuals amortize bond discount as interest income
Term
original issue discount
Definition
loan made that requires a payment at maturity exceeding the amount of the original loan (must be amortized using the effective interest rate method)
Term
short-term discounts for cash basis TP
Definition
taxed at maturity as ordinary income
Term
series EE bonds
Definition
interest paid when bond matures and can be excluded if used to pay higher education expenses if owner of bond is at least 24. (phased out for 2011 when modified AGI is more than 70,100/106,650 for single/married TP)
Term
municipal interest
Definition
interest on state or local bonds is excluded
Term
below market loans
Definition
if interest charged for a loan is less than the current market rate then the borrower payes current market rate to the lender
Term
2 types of loans exempt from below market rules
Definition
1-loans less than $10,000 are excluded as long as proceeds aren't used to purchase investment materials 2-loans under $100,000 with no tax-avoidance motive: deemed interest paid by the borrower is limited to borrower's investment income on the loan proceeds. (if investment income is less than $1,000 than it is deemed to be 0)
Term
dividend income
Definition
not taxed for TP in 0-15% tax bracket and taxed 15% for higher brackets (must be domestic corporation and stock must be held for 60 days of the 121 day period beginning 60 days before the ex-dividend date)
Term
stock dividends or split on common stock
Definition
excludible as long as it is proportionate. basis of stock must be adjusted
Term
alimony
Definition
taxed to recipient and deducted by payor (must meet 5 requirements)
Term
child support
Definition
not taxable and non deductible
Term
property transfers between former spouses
Definition
other than cash to a former spouse under divorce decree are not taxable. basis transfers with property
Term
special front loading rule
Definition
recapture required of deductions and income if alimony payment decline more than $15,000 over the first 3 years after divorce
Term
"separate" property
Definition
consists of assets owned before marriage or acquired by gift or inheritance while married. income belongs to spouse that owns
Term
"community" property
Definition
property acquired during marriage. each spouse is taxed on 50% of the income
Term
physical injury or illness income
Definition
not subject to income taxation
Term
workers compensation
Definition
not taxable
Term
damages
Definition
received for emotional distress, employment or age discrimination, or injury to reputation must be included in gross income
Term
punitive damages
Definition
must be included in income
Term
annuities
Definition
require an insurance company to make certain payments to a TP for a specified period of time.
Term
income in respect of a decedent (IRD)
Definition
income which decedent had earned before his death but had not yet recognized as income because of accounting method. must be included in income of person who receives it
Term
prizes and awards
Definition
FMV must be included in income unless for civic, artistic, educational, scientific, or literary achievement and recipient is selected without action on his part and prize is paid directly to a tax-exempt or governmental organization)
Term
Scholarships
Definition
excludible if used for tuition, fees, books, supplies, or equipment required for classes
Term
life insurance PROCEEDS
Definition
excluded from income when received due to death
Term
sale of life insurance plan
Definition
proceeds received over cost are taxable unless patient is terminally or chronically ill
Term
gifts
Definition
excluded if the purpose of transfer was generosity. income accrued up to time of gift is taxed to donor and income accrues after the gift to donee
Term
forgiveness of debt
Definition
results in income to the borrower unless its a gift or relates to a bankruptcy proceeding.
Term
cancellation of debt on real property used in trade or business
Definition
income is never recognized but basis of the property must be reduced by amount of forgiveness
Term
discharge of indebtedness on TP principal residence from 2007-2012
Definition
excludible up to $2 million
Term
Social security benefits
Definition
generally not included in income. if TP provisional income exceeds $25,000, then up to 85% of the benefits may be included income
Term
provisional income equation
Definition
PI= AGI + tax-exempt interest + 50% (SSB)
Term
unemployment compensation
Definition
included in income
Term
foster child payments
Definition
excluded from income if they are for reimbursement for expenses incurred to care for foster child
Term
oddity with accrual method for tax purposes
Definition
unearned income is recognized in year received, rather than earned
Term
3 entities that CAN'T use cash method of accounting
Definition
1-c corporations 2-partnerships that have c-corps as partners (unless gross receipts for past 3 years dont exceed $5 million) 3-tax shelters
Term
business with inventory must use the...
Definition
accrual method unless annual gross receipts are < $1,000,000. (delivery services with gross receipts between $1 million-$10 million can use cash method too)
Term
Uniform capitalization method
Definition
all manufacturers and wholesalers must capitalize all direct and indirect costs allocable to property that they produce
Term
voluntary change in accounting method income
Definition
spread over 4 years unless income is less then $25,000 (then in first year)
Term
revenue from advanced payment for goods
Definition
can be deferred until earned as long as the same accounting method is used for financial accounting
Term
prepaid dues and subscriptions
Definition
reported over the membership or subscription period
Term
long-term contracts
Definition
income is reported with the percentage of completion method
Term
completed contract method
Definition
income recognized upon completion of project. permitted for home construction contracts, and contracts with contractors whose average gross receipts for the past 3 years do not exceed $10 million
Term
leasehold improvements
Definition
FMV is income to landlord if in lieu of rent
Term
benefits from TP purchased insurance policies
Definition
proceeds from health and disability insurance proceeds are excluded if the TP paid the premiums even if they are a substitute for lost wages
Term
benefits from employer purchased DISABILITY policies
Definition
if employer pays premiums, proceeds are taxed
Term
benefits from employer purchased HEALTH insurance plans
Definition
excludible if for qualified medical expenses or loss of (or use of) body part or permanent disfigurement
Term
benefits received from long-term care policies
Definition
excludible from income up to $300 per day in 2011
Term
life insurance premiums paid by employer on group-term
Definition
excluded on group-term life insurance as long as policy is face value of $50,000 or less
Term
life insurance premiums paid by employer on a whole-life policy
Definition
premiums included in income
Term
health insurance premiums paid by employer
Definition
excludible.
Term
employer paid premiums for disability insurance plans
Definition
excludible
Term
employer paid premiums for long-term care insurance plans
Definition
excludible
Term
employer paid premiums for wage continuation insurance
Definition
included in income
Term
personal expenses paid by employer
Definition
included in income because it is compensatory in nature.
Term
food and lodging
Definition
excluded if provided for employers convenience and a condition of employment. meals must be provided on the employer's premises.
Term
fringe benefits
Definition
excludible
Term
de minimus cringes
Definition
excluded because small and infrequent
Term
employee discounts
Definition
excludible if not more than 20% for services, and average gross profit % for merchandise
Term
nominal gifts
Definition
excluded if under $25
Term
safety and length of service achievement awards
Definition
excluded from income subject to limits of $400 if non-qualified plan and $1,600 if qualified plan (taxed if cash. can't be given more than once every 5 years)
Term
transportation and parking
Definition
employer reimbursements are excludible up to $230 a month for transportation and $230 a month for parking
Term
child and dependent care services
Definition
up to $2500/5000 can be excluded for single/married
Term
Undergraduate and graduate tuition, fees, books, and supplies
Definition
excluded up to $5,250
Term
adoption expenses
Definition
excludible from gross income up to $13,360 (phased-out at AGI levels between $185,210-$285,210)
Term
benefits paid to family of deceased
Definition
included in income of family
Term
Flexible Spending Accounts (FSAs)
Definition
set up by employer to allow employees to contribute a portion of their salary to an account to pay medical expenses, dependent care expenses, or adoption expenses.
Term
nonqualified stock options
Definition
on date of exercize, employee recognizes income = to (FMV of stock - exercise price) x # of shares
Term
Incentive stock options
Definition
-no income is recognized when stock is exercised. -when later sold, gain on sale is LTCG if acquired stock is held more than one year and not sold until after two years from the date the option was granted. employer doesn't receive a deduction
Term
if requirements are not met on sale date of incentive stock options, then...
Definition
the option is treated like nonqualified stock except on sale date. -gain on sale is ordinary income and employer receives a deduction equal to stock's FMV on the exercise date over the exersize price -difference between FMV on sale date and exercise date is capital gain or loss
Term
contributions made by an employer to a "qualified" retirement plan
Definition
are not subject to tax until the contributions are withdrawn from the plan
Term
qualified pension plans
Definition
must meet nondiscriminatory, funding, vesting, and certain participation/coverage requirements.
Term
early withdrawals (before age 59 1/2) from qualified pension plans
Definition
trigger a penalty in addition to the taxation of the withdrawal
Term
Traditional IRAs (individual retirement accounts)
Definition
provide a deduction for eligible contributions
Term
contributions to traditional IRAs
Definition
-limited to $5000 ($6000 if over 50 years old) or compensation ($10000 for married)
Term
Traditional IRA deductions
Definition
  • If TP is not a participant in a qualified pension plan: contributions can be deducted for AGI
  • if TP is active paticipant in qualified plan: deduction phased-out if AGI exceeds $90,000/$56,000
Term
Roth IRA contributions
Definition
  • not deductible (same limits as traditional IRA contributions)
  • covered contributions are phased-out if AGI > $107,000/169,000
Term
Coverdell Savings account (established to pay higher education costs for students under 18) contributions
Definition
-not deductible but income may not be subject to tax. -limited to $2,000 per beneficiary (phased-out if AGI is >$95,000/$190,000
Term
withdrawals from a traditional IRS
Definition
taxed as income in the year of withdrawal
Term
withdrawals of INCOME from a Roth savings account
Definition
tax exempt if distribution occurs five years or more from the date of the initial contribution and is made on or after an individual attains age 59 1/2, if due to death or disability of TP, if first-time homebuyer expenses, or certain education expenses
Term
withdrawals of CONTRIBUTIONS from a Roth IRA account
Definition
not taxed as income
Term
Withdrawals of CONTRIBUTIONS of income from a Coverdell savings account
Definition
are not subject to tax if used to pay higher education expenses or rolled into a Coverdell saving account for member of family
Term
Keogh Plan contributions
Definition
-same limits as pension plans except the maximum percentage limit is based upon self-employment earnings.
-limit is lesser of $49,000 or 100% of earned income (earned income=net earnings from self-employment less 50% of the self-employment tax less allowable Keogh contribution)
Term
Section 259 plans
Definition
used to save for college expenses through a vehicle that allows earnings to be excluded from gross income
Term
section 259 plan contributions
Definition
not deductible and lifetime limit of $250,000
Term
section 259 earnings
Definition
tax deferred
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