PH3ky412

PH3ky412 - CHAPTER 3 CONCEPTS OF INCOME ECONOMIC-...

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CHAPTER 3 CONCEPTS OF INCOME
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ECONOMIC -- Consumption + increase in wealth. ACCOUNTING -- Realization: 1) exchange of goods 2) transaction with a second party JUDICIAL (TAX) -- An increase in wealth realized . There are two reasons for the tax concept of income: 1) Administrative convenience - elimination of most subjective valuations. 2) Wherewithal-to-pay - taxpayer must have the cash with which to pay taxes. Court Case --The taxpayer, a cocktail waitress in a casino, did not report her tip income to her employer or the IRS. The IRS reconstructed her tip income by using a formula derived by using surveillance cameras and video in the casinos. James C. and Ida Martin , T.C. Memo. 1993-180. INCOME CONCEPTS FORM OF RECEIPT-- Income is taxable regardless of the form in which it is received (e.g., money, property, services). INDIRECT ECONOMIC BENEFIT-- Realized increases in wealth are not taxable if they are received in the course of employment and the benefit of the employee is not the primary objective.
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TO WHOM IS INCOME TAXABLE? ASSIGNMENT OF INCOME-- Taxpayer cannot assign his/her income to another individual. COMMUNITY VERSUS COMMON INCOME STATES (Applies to married couples only) a. Community Property States-- 1. Idaho 6. Arizona 2. Louisiana 7. California 3. Texas 8. New Mexico 4. Wisconsin 9. Washington 5. Nevada Community Income --All items are divided equally between spouses. Separate Property --With all income divided equally except for income on property owned before marriage and gifts and inheritances received after marriage. b. Common Law States-- all others Example --John and Mary were married throughout the year. During the current year they received the following income: John's salary, $20,000; Mary's salary, $40,000; interest on bonds purchased as joint owners, $1,500; interest on bonds inherited by Mary during the year, $900; interest on bonds purchased by Mary
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during the year, $500. Allocate the income between John and Mary under community and common law states. COMMUNITY PROPERTY STATES COMMON LAW Community Separate Income Property John Mary John Mary John Mary Salary Interest Interest Interest ---------- ---------- ---------- ---------- ---------- ---------- TOTALS Example --John and Mary were married throughout the year. During the current year they received the following income: John's salary, $20,000; Mary's salary, $40,000; interest on bonds purchased as joint owners, $1,500; interest on bonds inherited by Mary during the year, $900; interest on bonds purchased by Mary
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during the year, $500. Allocate the income between John and Mary under community and common law states. COMMUNITY PROPERTY STATES COMMON LAW Community Separate Income Property John Mary John Mary John Mary Salary 30,000 30,000 30,000 30,000 20,000 40,000 Interest 750 750 750 750 750 750 Interest 450 450 0 900 0 900 Interest 250 250 250 250 0 500 ---------- ---------- ---------- ---------- ---------- ---------- TOTALS 31,450 31,450 31,000 31,900 20,750 42,150
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This note was uploaded on 10/03/2011 for the course ACCT 412 taught by Professor Crabtree during the Spring '11 term at UNL.

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PH3ky412 - CHAPTER 3 CONCEPTS OF INCOME ECONOMIC-...

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