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When calculating their AGI for taxing purposes, it is imperative that taxpayers differentiate between active (also called nonpassive) and passive activities. Generally, passive losses are not deductible as losses against active income items. Because a taxpayer can only deduct passive losses from passive activity income, any passive losses greater than the passive income are carried over until the following year. This situation poses the question of whether an activity, and the resulting income, is active or passive. According to the IRS, any income that results from an "activity or business in which the taxpayer does not materially participate" is passive income. Whether taxpayers are classified as active or passive could potentially make a tremendous difference in their tax liability.
Consider the following scenario:
You are preparing taxes for Tim, a business investor, and must calculate his adjusted gross income. Tim invested $10,000 in a business (only slightly less than the other investors) but is claiming a loss of $24,000. He spends 5 hours a week participating in business-related activities. Only one other investor spends more time on business activities than he does. Tim is confused about his characterization and believes he is both an active and passive investor. Why would an investor believe he is both? Consider how you would determine whether an investor is active or passive.
Income statement, Little Books Inc. recently reported $3 million of net income. Its EBIT was $6 million, and its tax rate was 40 percent.
Discuss a production process that you think would involve the production of joint products, being sure to address the following points:
What types of information must be disclosed in the management discussion and analysis? Explain.
On March 1, Year 1, a firm issues $475,000 bonds at par value plus accrued interest. The stated rate on the bonds was 12% and the bonds pay interest semi-annually on June 30 and December 31. Prepare the entries necessary to record
Treasury Stock Transaction-Nature corporation engaged in the folloiwing treasury transactions during current year. Complete three journal entries to record these treasury stock transactions.
Page Enterprises has bonds on the market making annual payments, with eight years to maturity, and selling for $988. At this price, the bonds yield 7.90 percent.
Greetings Online disposed of a van that cost $22000 with accumulated depreciation of $15000. The journal entry would be to:
What would be the proper entry for the following transaction?
Prepare the statement of cash flows for the year ended December 31, 20X6, using the direct method, and include a schedule of noncash investing and financing activities if necessary.
Make journal entries to record the receivable from the sales transaction and the forward contract on April 1. Make journal entries to record collection of the receivable and settlement of the forward contract on May 30
On June 1, 2007, Rehman, Inc. issued $600,000, 6% bonds for $587,640, which includes accrued interest. Interest is payable semiannually on February 1 and August 1 with the bonds maturing on February 1, 2017. The bonds are callable at 102.
Brian purchased 500 shares of the substantially identical stock for $3,000. What is the tax effect fir Brian as well as what will be the basis of each of four batches of new stock?
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