Chapter 13 Questions - Income Tax II Name _Christian...

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Income Tax II Name ___Christian Yimgnia_______ Chapter 13 Questions Explain and/or discuss the following based on reading the chapter and viewing the power points. Be thorough with your answers. You may take all the space you need. 1. Describe the rules for determining what tax year should be used. Give an example. The “tax year” is the calendar year or the fiscal year where the taxable income is calculated. The tax year is normally for a period of 12 months ending on December 31. There is also a fiscal year that has 12 months ending on the last day of any month other than December. A fiscal year will be recognized by the IRS only if it is established as the annual accounting period for the taxpayer and the taxpayer’s books are kept on the same basis. For a taxpayer to establish and maintain a fiscal year, he must correlate accounting, financial and business practices with the fiscal year used for tax returns. 2. Explain the rules for change of accounting period. Any taxpayer who wants to change the annual accounting period and adopt a new tax year will need the approval of the IRS before using the new period for tax purposes. A change in accounting period will usually involve a short period tax year. So the first procedure for a taxpayer for permission to change the tax year will be to file an application on Form 1128 on or before the 15 th day of the 3 rd calendar month following the end of the short year. There are some exceptions to when a taxpayer may change their tax year without approval. 3. What is a short tax year? Why would it be used, and what are the rules for doing so? A short tax year is used in case a change in an accounting period happens. Therefore, a separate return is filed for the short period beginning with the day following the close of the old tax year and ending with the day preceding the first day of the new tax year. This
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Chapter 13 Questions - Income Tax II Name _Christian...

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