Active Income

Active income is a taxation term used to identify income that the taxpayer mentally and physically participated in the process of earning. Examples include rental income whereby the taxpayer served as the contact person for his own rental property.  There are exceptions to active income.   To learn about these exceptions, review the following articles.

At-Risk Rules – An Elementary Understanding

At-Risk Rules

Code Section 465 of the Internal Revenue Code defines ‘At-Risk’ as the financial value the taxpayer has in jeopardy related to the business activity the taxpayer is invested in as some form of an owner.  Effectively, the taxpayer may only take losses on his tax return contingent on the loss being directly tied to invested dollars with some form of tax basis.

Passive Income

Passive Income

Passive income is a form of earning money without materially participating in the activity from which the income is derived.  There are two definitions for the reader to understand.  There is the common business definition and the tax code definition. 

Revenue and Sales – What is the Difference?

Revenue and Sales

Sales are a component of revenue.  Revenue encompasses several sources of income including sales.  Other sources of revenue include interest, trust monies, royalties, and fees.  In effect, revenue includes all sources of income, realized and unrealized.  Sales are divided into two levels, gross sales are all sales at the regular price; net sales are gross sales less discounts or adjustments associated with that particular product(s). 

What is a K-1?

A K-1 is a reporting tool to the Internal Revenue Service.  It is used by Partnerships, S-Corporations and Trusts to report the taxpayer’s share of income, deductions, and credits.  A K-1 is similar to Form W-2 or 1099 in that the information provided informs the taxpayer of what has been reported to the Internal Revenue Service.

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