The 12-month period that a taxpayer uses to determine federal income tax liability. Unless a taxpayer makes a specific choice to the contrary, his accounting period is the calendar year. Accrual Method of Accounting One of the two most common methods of accounting, the other being the cash method. Under the accrual method of accounting, income is reported in the tax year earned, whether or not received, and deductions are claimed in the tax year incurred, whether or not paid. Acquisition Debt Debt incurred to acquire, construct, or improve the taxpayer's principal or secondary residence.
Active income is income for which the taxpayer performs services.
Examples are wages, salaries, tips, bonuses, and business and partnership income in which the taxpayer materially participates in the business or partnership. See Passive Income and Portfolio Income. The method of deducting automobile expenses based on actual costs incurred. Additional Child Tax Credit A refundable credit available to taxpayers with three or more children qualifying for the child tax credit and whose regular child tax credit exceeds tax liability minus other nonrefundable credits. The additional child tax credit is computed on Form 8812.