Answer the following statements true (T) or false (F)

Question

1. In community property states, income is generally taxed to the spouse who earned it.
2. FALSE
Explanation: In community property states, the income from the personal efforts of either spouse is considered to belong equally to the spouses.
3. If a taxpayer's method of accounting does not clearly reflect income, the IRS may specify a different accounting method which must be used by the taxpayer.
4. A consulting firm, organized as partnership and owned by 20 individual partners, reports about $40 million of gross receipts per year. The partnership must use the accrual method.
5. The cash receipts and disbursements method of accounting is used by most individual taxpayers and most noncorporate businesses that do not have inventories.

Answer 1

1. FALSE
In community property states, the income from the personal efforts of either spouse is considered to belong equally to the spouses.
2. TRUE
Income earned by a child due to either property or services is taxed to that child, not the parents.
3. TRUE
The tax law allows taxpayers to choose a meth
4. FALSE
Businesses without inventories, such as service partnerships, can use the cash method regardless of size and amount of gross receipts.
5. TRUE
For individuals and small businesses, the cash method is preferred due to simplicity and control over timing of recognition of income and deductions.