Joline is a cash basis taxpayer. A renter pays Joline the January 2014 rent in December 2013. What are the tax effects of this transaction? I. Joline will recognize rent income for tax purposes in 2014. II. The wherewithaltopay concept is the basis for Joline's recognition of the income in 2014.

Question

Joline is a cash basis taxpayer. A renter pays Joline the January 2014 rent in December 2013. What are the tax effects of this transaction? I. Joline will recognize rent income for tax purposes in 2014. II. The wherewithal­to­pay concept is the basis for Joline's recognition of the income in 2014.

Quizplus · Accepted Answer

As a cash basis taxpayer, Joline must recognize income when it is actually or constructively received, which means she should recognize the rent income in 2013, not 2014. The wherewithal-to-pay concept is not applicable here as it pertains to the ability to pay taxes, not the timing of income recognition.

Joline Is a Cash Basis Taxpayer