Chapter 1
Cash, Accrual, and Hybrid
What are types of Accounting Methods?
an incentive for small businesses that allows them to immediately expense a certain amount of tangible personal property placed in service during the year.
What is Section 179 expense?
The difference between the amount realized and the adjusted basis of an asset sold or otherwise disposed of.
What is Realized gain or loss?
business entity recognized as a separate entity from its owners under state law.
What is a corporation?
Determines if a business qualifies as a "small" business if gross receipts do not exceed $27 million for the 3-year period preceding the current year.
What is the Gross Receipts Test?
the method by which a company expenses the cost of acquiring capital assets. It can take the form of depreciation, amortization, or depletion.
What is cost recovery?
an asset’s carrying value for tax purposes at a given point in time, measured as the initial basis (for example, cost) plus capital improvements less depreciation or amortization.
What is the Adjusted basis?
unincorporated entity with one owner that is considered to be the same entity as the owner.
What is a disregarded entity?
requires that income or expenses are recognized when (1) all events have occurred that determine or fix the right to receive the income or liability to make the payments and (2) the amount of the income or expense can be determined with reasonable accuracy.
What is the All-events test?
a length of time prescribed by statute in which business property is depreciated or amortized.
What is the recovery period?
property given or received in an otherwise nontaxable transaction such as a like-kind exchange that may trigger gain to a party to the transaction.
What is boot?
legal entities, like partnerships, limited liability companies, and S corporations, that do not pay income tax.
What are flow-through entities?
the requirement that must be met for an accrual method taxpayer to deduct an expense currently.
What is the Economic Performance Test?
additional depreciation allowed in the acquisition year for tangible personal property with a recovery period of 20 years or less.
What is Bonus Depreciation?
depreciable or real property used in a taxpayer’s trade or business owned for more than one year.
What is Section 1231 assets?
a corporation under state law that has elected to be taxed under the rules provided in Subchapter S of the Internal Revenue Code.
What is an S Corporation?
a change to taxable income associated with a change in accounting methods.
What is a Section 481 adjustment?
This convention must be used when more than 40 percent of tangible personal property is placed into service in the fourth quarter of the tax year.
What is mid-quarter convention?
a tax rule requiring taxpayers to treat current year net §1231 gains as ordinary income when the taxpayer has deducted a §1231 loss as an ordinary loss in the five years preceding the current tax year.
What is the 1231 look-back rule?
a business entity that is not legally separate from the individual owner of the business. The income is taxed and paid directly by the owner.
What is a sole proprietorship?