A landlord who receives prepaid rent is required to report that amount as gross income when the payment is received. Why would Congress choose to do this? What problem does this create for the taxpayer? O A. Congress taxes prepaid rental income due to the concern that taxpayers who spend the money will be unable to pay the tax when it comes due. The problem created for taxpayers is that they are taxed before they incur related expenses, such as repairs, insurance, and depreciation. Therefore, there is a mismatching of revenue and expense. OB. Congress taxes prepaid rental income to regulate federal cash inflow. The problem created for taxpayers is that they are taxed before they incur related expenses, such as meals and lodging, club membership dues, and depreciation. Therefore, there is a mismatching of revenue and expense. OC. Congress taxes prepaid rental income to collect more taxes from a taxpayer by increasing their tax bracket with the additional income. The problem this causes for the taxpayer is inconsistent taxable income from year to year and increases the risk of an audit. O D. Congress taxes prepaid rental income due to numerous landlords not reporting this income in the following tax year. The problem created for taxpayers is that they are taxed before they incur related expenses and these expenses are then disallowed in the following tax year by the federal government.
A landlord who receives prepaid rent is required to report that amount as gross income when the payment is received. Why would Congress choose to do this? What problem does this create for the taxpayer? O A. Congress taxes prepaid rental income due to the concern that taxpayers who spend the money will be unable to pay the tax when it comes due. The problem created for taxpayers is that they are taxed before they incur related expenses, such as repairs, insurance, and depreciation. Therefore, there is a mismatching of revenue and expense. OB. Congress taxes prepaid rental income to regulate federal cash inflow. The problem created for taxpayers is that they are taxed before they incur related expenses, such as meals and lodging, club membership dues, and depreciation. Therefore, there is a mismatching of revenue and expense. OC. Congress taxes prepaid rental income to collect more taxes from a taxpayer by increasing their tax bracket with the additional income. The problem this causes for the taxpayer is inconsistent taxable income from year to year and increases the risk of an audit. O D. Congress taxes prepaid rental income due to numerous landlords not reporting this income in the following tax year. The problem created for taxpayers is that they are taxed before they incur related expenses and these expenses are then disallowed in the following tax year by the federal government.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**Topic: Taxation on Prepaid Rent**
A landlord who receives prepaid rent is required to report that amount as gross income when the payment is received. Why would Congress choose to do this? What problem does this create for the taxpayer?
**Options:**
- **A.** Congress taxes prepaid rental income due to the concern that taxpayers who spend the money will be unable to pay the tax when it comes due. The problem created for taxpayers is that they are taxed before they incur related expenses, such as repairs, insurance, and depreciation. Therefore, there is a mismatching of revenue and expense.
- **B.** Congress taxes prepaid rental income to regulate federal cash inflow. The problem created for taxpayers is that they are taxed before they incur related expenses, such as meals and lodging, club membership dues, and depreciation. Therefore, there is a mismatching of revenue and expense.
- **C.** Congress taxes prepaid rental income to collect more taxes from a taxpayer by increasing their tax bracket with the additional income. The problem this causes for the taxpayer is inconsistent taxable income from year to year and increases the risk of an audit.
- **D.** Congress taxes prepaid rental income due to numerous landlords not reporting this income in the following tax year. The problem created for taxpayers is that they are taxed before they incur related expenses and these expenses are then disallowed in the following tax year by the federal government.
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