Federal Taxations Week 2 Lecture 1

Federal Taxations Week 2 Lecture 1 - Federal Taxations Week...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Federal Taxations Week 2 Lecture 1 1. In the previous lesson we discussed Tax Determination; Personal and Dependency Exemptions. In this lesson we will discuss Gross Income: Concepts and Inclusions and begin discussing in more detail some of the concepts that make up the current internal revenue code. Next Slide: 2. This lesson is concerned with the first step in the computation of taxable income – the determination of gross income. Questions that are addressed include the following: What: What is income? When: In which tax period is the income recognized? And Who: Who must include the item of income in gross income? Next Slide: 3. After completing this lesson, you should be able to: Explain the concepts of gross income and realization and distinguish between the economic, accounting, and tax concepts of gross income. Describe the cash and accrual methods of accounting and the related effects of the choice of taxable year. Identify who should pay the tax on a particular item of income in various situations, and Apply the Internal Revenue Code provisions on alimony, loans made at below-market interest rates, annuities, prizes and awards, group term life insurances, unemployment compensation, and Social Security benefits. Next Slide: 4. The Internal Revenue Code has specific definitions for some terms; however gross income is not one of those terms. Section sixty-one-A of the Internal Revenue Code defines the term gross income as, except as otherwise provided in the subtitle, gross income means all income from whatever source derived. Supreme court decisions have made it clear that all sources of income are subject to tax unless Congress excludes the type of income received. So, this allows for very broad coverage of the income that should be included on an individual’s income tax return. As mentioned in previous lessons, it may help you as we discuss these terms to use Form ten-forty and the instructions booklet that can be downloaded from www.irs.gov. Accountants and economists measure income differently. Economists measure income by first determining the fair market value of the individual’s net assets at the beginning and end of the year, change in net worth. Then, to arrive at economic income, this change in net worth is added to the goods and services that person actually consumed during the period. The accounting concept of income is based on the realization principle, as in financial accounting. According to this principle, income is not recognized until it is realized. For realization to occur, an exchange of goods or services must take place between the accounting entity and some independent group, and in the exchange the accounting entity must receive assets that are capable of being objectively valued. Next Slide:
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/08/2010 for the course ACC317 adv. feder taught by Professor Man during the Spring '10 term at Strayer.

Page1 / 4

Federal Taxations Week 2 Lecture 1 - Federal Taxations Week...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online