- Federal Taxes and Mgmt Decisions-Week3- HW

- Federal Taxes and Mgmt Decisions-Week3- HW - January 23,...

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January 23, 2010 Week 3 Homework Question 7-7. Differentiate between active income, passive income, and portfolio income. - Active income refers to the direct efforts of the taxpayer (salary, commission, wages). Business profits are considered active income only where there is material participation in the business operations. Passive income is derived from a passive activity or business activities in which you do not materially participate. Some examples of passive income are rent from property, pensions, or royalties from publishing a book. Portfolio income is interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business (gain from the sale of property that produces portfolio income). Portfolio income cannot be used to offset passive activity losses. Question 7-13. What is “material participation”? Why is the determination of whether a taxpayer materially participates important?
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- Federal Taxes and Mgmt Decisions-Week3- HW - January 23,...

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