Gross Income

Question 1

Individual Tax Formula

Answer 1

GROSS INCOME
–Section 62 Deductions (above the line)
=ADJUSTED GROSS INCOME
–Greater of Itemized Deductions or Standard Deduction
–Qualified Business Income Deduction
=TAXABLE INCOME
×Tax Rate
=GROSS TAX Liability
–Credits
=NET TAX Liability or Refund Receivable

Question 2

Cash method of accounting

Answer 2

includes income when constructively received.

Question 3

Accrual method of accounting

Answer 3

reports income when

1. All events have occurred fixing the right to receive the income.
2. The amount can be determined with reasonable accuracy.

Question 4

Constructive Receipt

Answer 4

Income, although not actually in a taxpayer’s possession, is constructively received in the taxable year during which it is credited to his or her account, set apart for him or her, or otherwise made available so that (s)he may draw upon it at any time, or so that (s)he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.

Question 5

Alimony

Answer 5

included in the gross income of the recipient (payee) and are deducted from the gross income of the payor for divorce decrees executed

Question 6

Payments considered to be alimony

Answer 6

1. Paid in cash
2. Paid pursuant to a written divorce or separation instrument
3. Not designated as other than alimony
4. Terminated at death of recipient
5. Not paid to a member of the same household
6. Not paid to a spouse with whom the taxpayer is filing a joint return

Question 7

Child Support

Answer 7

Child support payments are an exclusion from the gross income of the recipient and are not deductible by the payor. These payments are not alimony.