Gross Income Flashcards
How Net Tax or Refund Is Calculated
1) GROSS INCOME
- Above the Line Deductions
= ADJUSTED GROSS INCOME
2) - Personal Exemptions
- Itemized or Standard (whichever is greater)
= TAXABLE INCOME
3) x Tax Rate
= GROSS TAX LIABILITY
4) - CREDITS
= NET TAX LIABILITY or REFUND
Life Insurance and Endowment Contracts
excluded from gross income
Cancelation of indebtedness (in part or whole)
counts as gross income
Social Security benefits IF ADD’L INCOME PRESENT
counts as gross income
Unemployment benefits
counts as gross income
Cost of group term life insurance where coverage is more than $50K
counts as gross income
Gambling Winnings (form W-2G)
counts as gross income
Reimbursements for any items which you claimed in previous year as deduction
counts as gross income
Employer-Provided Educational Assistance: up to $5250
can be excluded; onwards counts as gross income
Foreign-Earned Income: anything greater than $102,100
counts as gross income
Alimony and Separate Maintenance Payments
counts as gross income (deducted from Payor)
Child Support
DOESN’T COUNT as gross income (not deducted from Payor)
Property Settlement
not treated as alimony (simply recorded as division of property)
ALMOST ALL forms of INTEREST INCOME
counts as gross income (unless special exclusion rules apply)
Interest on state or local bonds
DOESN’T COUNT as gross income
Interest on ALL REFUNDS
counts as gross income
Interest on US SAVINGS BOND: Series EE or I
DOESN’T COUNT as gross income if higher education was paid for during tax year
DIVIDENDS
represent a share of corporate profit paid to shareholders/investors and are taxed when paid out. They are counted as (and as a result taxed at) either ORDINARY GROSS INCOME or LONG-TERM CAPITAL GAINS (also known as Qualified Dividends)
Stock must be held for
more than 60 days for its dividends to taxed at the lower 15% long-term capital gain rate OR
more than 90 days if it’s a Preferred Stock
Capital Gain Distributions or Mutual Funds
treated as long-term regardless of the actual period investment was held
Reinvested Dividends
treated as ORDINARY and taxable in the year paid
Incentive Stock Option or Incentive Stock Option
don’t count as income until the stock acquired is disposed of
Royalties and Rental Income
count as ORDINARY gross income
Income in Respect of a Decedent (IRD)
uncollected income for a taxpayer who passed away. Income taxed towards the beneficiary, and also counts towards the value of the estate (which is subject to a federal tax). Double taxation is mitigated by deductions.
IRD has a transferred basis and is not stepped-up meaning
it’s fair-market-value isn’t calculated (as is generally the case for property acquired from decedent)
IRDs are treated as if
the actual person was receiving it (401Ks, uncollected wages, interest and dividends accrued, distributions)
Capital gains tax begins with your basis in an asset—what you paid for it and, in some cases, the cost of any capital improvements you’ve made.
You’ll pay capital gains tax on the difference between the sales price and your basis when you sell the property, or you may have a capital loss if the sales price is less than your basis.
Your basis in inherited property is not what the decedent initially paid for the asset. It’s “stepped up” to the asset’s value as of his date of death, and this can make a big difference.
This step-up in basis applies to all inherited assets, including stocks, bonds, and real estate.
If you inherit real estate and you live in the property for at least two years before selling it, you can realize up to $250,000 in capital gains without paying taxes on it if you’re single.
You must live there for that period of time however (2 years)
