Accounting 301: Individual Income Tax - Gross Income

These flashcards cover key concepts related to gross income in individual income taxation, including definitions, important doctrines, and pertinent examples.

What is the starting point in the income tax formula?

Gross income defined as all income from whatever source derived.

According to the Internal Revenue Code Section 61, how is gross income defined?

Gross income = all income from whatever source derived, except as otherwise provided.

What does the recovery of capital doctrine state?

No income exists until a taxpayer has recovered his/her capital investment.

What types of income are included in gross income?

Compensation for services, business income, rents, royalties, interest, and dividends.

When is income recognized for tax purposes?

When a taxpayer receives an economic benefit that increases wealth.

What must occur to realize income?

A transaction must happen that results in a measurable change in property rights.

What is the general rule regarding borrowed money?

Borrowed money is not considered income as it provides no economic benefit.

What is the definition of recognition in tax terms?

The act of reporting realized income on a tax return.

What is the recovery of capital doctrine stated in tax terms?

Return of basis is not income; only profit over the basis is taxable.

What is the common accounting method used for individual taxpayers?

Calendar year for most sources of income.

When should income from services/sales be reported on tax forms?

Income is reported in the year it is received under the cash method.

What differentiates a C-Corporation from an S-Corporation?

A C-Corporation pays federal income tax on its profits directly, whereas an S-Corp income flows through to shareholders and is taxed at their individual rates.

What are the requirements for excluding an award from gross income?

The award must be transferred directly to a qualifying entity before the recipient actually receives it.

What is the gross income implication of gambling winnings?

Gambling winnings must be reported as income and can only deduct losses up to the amount won.

What is the effect of community property states on income tax?

Each spouse must report 50% of the combined income on their separate tax returns.

What are the tax consequences of inheriting property under U.S. tax law?

Gifts and inheritances are generally excluded from gross income.