Description
2. Based on the definition of gross income in §61, related regulations, and judicial rulings,
what are the three criteria for recognizing taxable income?
10. Describe in general how the cash method of accounting differs from the accrual method
of accounting.
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Cash methods:
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Accrual method:
19. Conceptually, when taxpayers receive annuity payments, how do they determine the
amount of the payment they must include in gross income?
45. Last year Acme paid Ralph $15,000 to install a new air-conditioning unit at its
headquarters building. The air conditioner did not function properly, and this year Acme
requested that Ralph return the payment. Because Ralph could not repair one critical part in
the unit, he refunded the cost of the repair, $5,000, to Acme.
a) Is Ralph required to include the $15,000 payment he received last year in his gross
income from last year?
b) What are the tax implications of the repayment if Ralph was in the 35 percent tax
bracket when he received the $15,000 payment from Acme, but was in the 24
percent tax bracket when he refunded $5,000 to Acme?
11. What types of taxes qualify to be deducted as itemized deductions? Would a vehicle
registration fee qualify as a deductible tax?
23. Under what circumstances would business income from an accounting practice qualify for
the deduction for qualified business income?
26. Smithers is a self-employed individual who earns $30,000 per year in self-employment
income. Smithers pays $2,200 in annual health insurance premiums (not through an
exchange) for his own medical care. In each of the following situations, determine the
amount of the deductible health insurance premium for Smithers before any AGI limitation.
a) Smithers is single, and the self-employment income is his only source of income.
b) Smithers is single, but besides being self-employed, Smithers is also employed
part-time by SF Power Corporation. This year Smithers elected not to participate in
SF’s health plan.
c) Smithers is self-employed, and he is also married. Smithers’s spouse, Samantha, is
employed full-time by SF Power Corporation and is covered by SF’s health plan.
Smithers is not eligible to participate in SF’s health plan.
d) Smithers is self-employed, and he is also married. Smithers’s spouse, Samantha, is
employed full-time by SF Power Corporation and is covered by SF’s health plan.
Smithers elected not to participate in SF’s health plan.
$2,200 as an itemized deduction
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