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The rules used to determine the tax year in which income and expenses are reported for tax purposes. Two major overall methods of accounting are the cash and accrual methods.
The period of time, usually 12 months, used by a taxpayer for the determination of taxable income. Taxpayers who do not keep records must use a calendar year, while taxpayers who do keep books and records generally may choose between a calendar year and a fiscal year. A fiscal year is a tax year that ends on the last day of a month other than December.
Adjusted Gross Income (AGI)
Unique to individual taxpayers, it generally represents an individual's gross income less business expenses, expenses attributable to the production of rents and royalty income, the capital loss deduction, and certian personal expenses (deductions for AGI)
The amount received by a taxpayer from the sale or other disposition of property. The amount realized includes the sum of cash and the fair market value of any other property or services received, plus any debt of the taxpayer assumed by the buyer. Determining the amount realized is the starting point for arriving at the taxpayer's realized gain or loss.
Under the at-risk rules, a taxpayer's deductible loss from an activity is limited to the amount the taxpayer has at risk in the activity at the end of the taxable year. The initial amount at risk is generally the sum of the amount of cash and the adjusted basis of property contributed to the activity, plus amounts borrowed for use in the activity for which the taxpayer is personally liable.
A method of accounting under which the taxpayer generally reports income for the taxable year in which payments are actually or constructively received. Expenses are deductible when paid.
All income from whatever source derived including (but not limited to) compensation for services, gains from property, interest, rents, royalties, dividends, alimony and income from discharge of indebtedness.
The level of participation by a taxpayer in an activity that determines whether the activity is a passive activity or an active trade or business activity. Material participation can be achieved by meeting any one of the seven tests provided in Regulations.
A loss generated from a passive activity. Generally, passive losses are not allowed to offset trade or business income or portfolio (investment) income.
Realized gain or loss
The gain or loss determined by taking the amount realized from the sale or exchange of property and subtracting the property's adjusted basis.
Statute of Limitations
The period of time after which a taxpayer's return is no longer subject to assessment, and the taxpayer can no longer file a claim for refund. The normal stature of limitations is generally three years fom the alter of the date the tax return is filed, or its due date.
The aquisition by a corporation of its own stock from a shareholder in exchange for property. A shareholder's redemption of stock may be treated as an exchange if it meets specified requirements, or otherwise will be treated as a dividend.
Tax Benefit Rule
The recovery of an item that was deducted in a prior year (e.g., state income tax refund) must be included in gross income for the year of recovery to the extent that the deduction of the item in the PY produced a tax benefit by reducing the taxpayer's tax.
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