Some tax timing issues

Some tax timing issues - Some tax timing issues Generally,...

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Some tax timing issues Generally, a cash-basis taxpayer reports income and claims deductions when cash (or property, valued at fair market value) is actually received or paid out, regardless of when the income was earned or the expense incurred. For example, if a taxpayer is paid with a note with a face value of $1,000 and a fair market value of $950, he has income of $950 at that point. If he eventually receives the entire $1,000, he’ll report the additional $50. But if he is not paid and merely reflects the amount due as an account receivable, he has no income yet. A check is the equivalent of cash. An accrual-basis taxpayer includes income when it’s earned, regardless of when it’s received. This occurs when all events have occurred fixing the taxpayer’s right to receive the income and amount he will receive can be determined with reasonable accuracy. Essentially, accrual basis taxpayers report all of their income when billed, even if they receive only notes or reflect the amounts due as accounts receivable. If income is earned subject to a potential refund claim (e.g., goods are sold with a warranty), report the income in full, and take a later deduction if the claim materializes. If the right to income is contested
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This note was uploaded on 09/30/2011 for the course ECO 373 taught by Professor Qq during the Spring '11 term at CUNY Hunter.

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Some tax timing issues - Some tax timing issues Generally,...

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