Week 3 Question - 1 7-7 Differentiate between the...

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1 7-7 Differentiate between the following: Active income – Is the income for which services have been performed. This includes wages, tips. Salaries, commissions and income from businesses in which there is a material participation.   http://www.investopedia.com/terms/a/activeincome.asp#ixzz1oqewmezO Passive income – This is the earnings an individual derives from a rental property, limited partnership or other enterprise in which he/she is not actively involved. Passive income is usually taxable, however it is often treated differently by the IRS. http://www.answers.com/topic/passive-income#ixzz1oqfaQWwU Portfolio income – Is the income from investments, dividends, interest, royalties and capital gains. Portfolio income does not come from passive investments and it is not earned through normal business activity. Usually, income from interest on money that has been loaned does not count as portfolio income. http://www.investopedia.com/terms/p/portfolioincome.asp#ixzz1oqg6qR5w 7-13 Briefly, what is “material participation”? Why is the determination of whether a taxpayer materially participates important? Answer: Material participation is an IRS classification for working in a business on a regular, continuous and substantial basis. This means that it is the point at which an individual spends enough time working on a project that they can no longer be considered a passive investor in the project. At this point they are considered to be actively involved. This is important as this is the basic line at which any income or loss from an activity
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This note was uploaded on 03/18/2012 for the course ACCT 550 taught by Professor Cavendar during the Spring '10 term at Keller Graduate School of Management.

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Week 3 Question - 1 7-7 Differentiate between the...

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