Determine the amount of taxable income that should be reported by a cash-basis t

Question

Determine the amount of taxable income that should be reported by a cash-basis taxpayer in 2015 in each of the following independent cases:

a. A taxpayer completes $425 of accounting services in December 2015 for a client who pays for the accounting work in January 2016.

b. A taxpayer is in the business of renting computers on a short-term basis. On December 1, 2015, she rents a computer for a $150 rental fee and receives a $375 deposit. The customer returns the computer and is refunded the deposit on December 20, 2015.

c. Same facts as (b) except that the computer is returned on January 5, 2016.

d. On December 18, 2015, a landlord rents an apartment for $460 per month and collects the first and last months' rent up front. It is customary that tenants apply the security deposit to their last month's rent upon moving out.

e. An accountant agrees to perform $340 of tax services for an auto mechanic who has agreed to perform repairs on the car of the accountant’s wife. The mechanic repairs the car in December 2015 and the accountant starts and completes the tax work in March 2016.

Explanation / Answer

Asnwer:

a. Since no cash receipts in 2015, hence zero income offered to tax.

b. Assuming that the rent fee of $ 150 not received in cash and even if received it is returned with the deposit and that deposit is not a income, hence zero income offered to tax.

c. Rental Fee of $ 150 shall be offered to tax if it is assumed to be received in 2015. Deposit is not an income to be offered to tax.

d. First and last month rent collected upfront shall be offered to tax for 2015, amount is $ 460 x 2 = $ 920

e. Accountant for 2015: Zero income and for 2016: $ 340 as income to be offered to tax.

Mechanic for 2015: Zero income and for 2016: $ 340 as income to be offered to tax. Since the accountant start and complete the work in march 2016 and no cash received or deemed to be received in 2015.

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