Gross Income, Exclusions, and Deduction Flashcards
Accident Insurance proceeds
Excluded
Annuities
Excluded (cost element)
Bequests
Excluded
Cost of living allowance (for military)
Excluded
Damages for personal injury or sickness
Excluded
Gifts received
Excluded
Group term life insurance, premium paid by employer
Excluded (for coverage up to 50,000)
Inheritances
Excluded
Interest from state and local (ie municipal bonds)
Excluded
Life insurance paid upon death
Excluded
Meals and Lodging
Excluded (if furnished for the employer’s convenience)
Military Allowances
Excluded
Minister’s dwelling rental value allowance
Excluded
Railroad retirement benefits
Excluded (to a limited extent)
Scholarship grants
Excluded (to a limited extent)
Social Seurity Benefits
Excluded (to a limited extent)
Veteran’s Benefits
Excluded
Welfare Benefits
Excluded
Worker’s Compensation Benefits
Excluded
Return of Capital
Excluded
Borrowed Funds
Excluded
Alimony and separate maintenance payments
Included by receiver deducted by payor
A transfer of property other than cash to a former spouse under a divorce decree or agreement is not a taxable event.
Alimony is payment in cash with an agreement that doesn’t say the payments are not alimony, and they two people are not members of the same household, ad there is no liability to make payments for any period after the death of the payee.
Annuities
Included (income element) but cost element in excluded
Awards
Included
Back pay
Included
bargain purchase from employer
Included
bonuses
Included
breach of contract damages
Included
business income
included
clergy fees
included
comminssions
included
compensation for serices
included
death benefits
included
debts forgiven
included
director’s fees
Included
dividends
Included
Dividends receive favorable treatment as compared to interest income.
If gifted, must give before declaration date. If sold, whoever has the dividend on the date of record pays the tax.
Qualified dividends are taxed at same MTR as applicable to net capital gain–maxed at 15-20 percent
Qualified dividends are not treated as capital gains in the gains and losses netting process and cannot be reduced by capital losses.
If from a foreign corp that is not trading on an established US securities market or has a specific treaty with the US, dividends from tax-exempt entities, and dividends that don’t satisfy the holding period requirements (more than 60 days during the 121 day period beginning 60 days before ex-dividend date.
embezzled funds
Included
Employee awards
Included (in certain cases)
Employee benefits
Included (except certain fringe benefits)
Estate and Trust income
Included
Farm Income
Included
Fees
Included
Gains from illegal activities
Included
Gains from sale of property
Included
Gambling winnings
Included
Group term life insurance, premium paid by employer
Included (for coverage over 50,000)
Hobby Income
Included
Interest
Included
Interest accrues daily. When gifted, the donor should recognizes his or her share of accrued income at time it would have been recognized if the donor had continued to own property. If a sale, transferor must recognize the accrued income at time of sale because accrued interes will be included in sales proceeds
Jury Duty Fees
Included
Living quarter, meals
Included (unless furnished for employer’s convenience)
Mileage allowance
Included
Military pay
Included (unless combat pay)
Notary fees
Included
Partnership income
Included
Pensions
Included
Prizes
Included
Professional Fees
Included
Punitive damages
Included
Rents
Included
Rewards
Included
Royalties
Included
Salaries
Included
Severance pay
Included
Strike and lockout benefits
Included
Supplemental unemployment benefits
Included
Tips and gratuities
Included
Travel Allowance (in certain cases)
Included
Treasure trove (found property)
Included
Wages
Included
Expenses incurred in a trade of business
Deductible for AGI
part of the self-employment tax paid by a self-employed taxpayer
Deductible for AGI
Unreimbursed moving expenses
Deductible for AGI
Contributions to traditional IRA and certain other retirement plans
Deductible for AGI
Fees for college tuition and related expenses
Deductible for AGI
Contributions to HSA (health savings accounts)
Deductible for AGI
Penalty for early withdrawal from savings
Deductible for AGI
Interest on student loans
Deductible for AGI
Ecess capital losses
Deductible for AGI
Alimony payments
Deductible for AGI
Personal living expenses, including any losses on the sale of personal use property
NONDEDUCTIBLE
hobby Losses
NONDEDUCTIBLE
Life insurance premiums
NONDEDUCTIBLE
Expenses incident to jury duty
NONDEDUCTIBLE
Gambling losses (in excess of gains)
NONDEDUCTIBLE
Child support payments
NONDEDUCTIBLE
Fines and penalties
NONDEDUCTIBLE, as these are against public policy
Political contributions
NONDEDUCTIBLE, as this might encourage abuses and enable businesses to have undue influence on the political process.
Certain passive losses
NONDEDUCTIBLE
funeral expenses
NONDEDUCTIBLE
expenses paid on another’s behalf
NONDEDUCTIBLE
capital expenditures
NONDEDUCTIBLE,
Defined–Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. Incidental repairs and maintenance of the property are not capital expenditures and can be deducted as ordinary and necessary business expenses.
it: Repairing a roof is a deductible expense, but replacing a roof is a capital expenditure subject to depreciation deductions over its recovery period.
medical expenses
Itemized deduction in excess of 10% of AGI (7.5% if over 65)
State and local income or sales taxes
Itemized deduction
Real estate taxes
Itemized deduction
Personal property taxes
Itemized deduction
Interest on home mortgage
Itemized deduction
Investment interest
Itemized deduction (to a limited extent)
Charitable contributions
Itemized deduction (within specific percentage limitations)
Casualty and theft losses
Itemized deduction in excess of 10% of AGI
Union dues
Itemized deduction in excess of 2% of AGI
Professional dues and subscriptions
Itemized deduction in excess of 2% of AGI
Certain educational expenses
Itemized deduction in excess of 2% of AGI
Tax return preparation fee
Itemized deduction in excess of 2% of AGI
investment counsel fees
Itemized deduction in excess of 2% of AGI
unreimbursed employee business expenses (after a percentage reduction for meals and entertainment)
Itemized deduction in excess of 2% of AGI
What is alimony recapture and front-loading
Amount of alimony that previously has been included in the gross income of the recipient and deducted by the payor that now is deducted by the recipient and included in the gross income of the payer as the result of font-loading.
In the third year, the payer must include the excess alimony payments for the first and second years in gross income, and the payee is allowed a deduction for these excess alimony payments
Recapture=D+E
D=B- (C + 15000)
E= A -((B-D+C)/2 + 15000)
D=recapture from y2, E=recapture from y1, and ABC are payments in the first, second, and third calendar years of the agreement or decree (D>0, E>0).
Medical insurance premiums paid by a self-employed taxpayer for coverage of the taxpayer, a spouse, and any dependents
Deducted for AGI
Certain contributions to pension, profit sharing, and annuity plans of self-employed individuals.
Deducted for AGI
$250 for teacher supplies for elementary and secondary school teachers
Deducted for AGI
Legal Expenses incurred in Defense of Civil or Criminal Penalties
Deductible if the origin and character of the claim are directly related to a trade or business, income producing activity, or the determination or collection or refund of a tax. PERSONAL LEGAL EXPENSES ARE NONDEDUCTIBLE
FOR AGI if with ordinary and necessary expenses incurred with a trade or business or incurred in conjunction with rental or realty property held for production of income.
All other is Deductible FROM AGI
Expenses of operating and illegal business (numbers racket)
Deductible, except for expenses incurred in illegal drug trafficking–where no deductions are allowed but they must use the money they earn to calculate their gross income.
Lobbying Expenditures
NONDEDUCTIBLE (including the membership dues portion that go to lobbying not deductible)
UNLESS it’s for city and county governments, activities monitoring legislation, and an annual in-house expenditures (lobbying expenses other than those paid to professional lobbyist or any portion of dues used by associations for lobbying if they don’t exceed 2,000. If they do exceed 2000, the in-house expenditures cant be deducted at all
Excessive Executive Compensation
Deduction of executive compensation is limited to:
1. The compensation of shareholder-employees of closely held corporations subject to the reasonableness requirement
- The millionaires’’ provision (for publicly traded companies) that says that an employer can deduct for the compensation of a covered executive 1 million annually. (covered employees like CEO and four other highly compensated execs)
- Compensation Paid to a covered executive in a TARP (troubled asset relief program) is limited to 500,000.
Investigation of a business
if the expenses are for a business the tax payer either acquires or commences and the taxpayer is already in that business, then all the expenses are fully deductible. If he or she is not in that line of businesses and he doesn’t acquire or commence then it’s not deductible. If he commences but he is not in the line of business, he deducts 5,000 automatically and amortizes the remaining amount over a 180 month period.
Note: if over 50,000 there is a dollar for dollar reduction in the deduction
Hobby losses
DEDUCTION FROM AGI (ITEMIZED). (so if you use the standard deduction there is no benefit to hobby losses).
If the taxpayer can show that the activity was for purpose of making a profit, then its deductible. Hobby income is deductible only to the extent of hobby income. Any activity is profit-seeking if the activity shows a profit in a t least three of any 5 prior consecutive years.
To determine the deduction (to the extent of the gross income of the hobby): expenses are deducted first to sections without specific nature to the hobby (personal taxes and mortgage interest), then under sections as if the activity had been engaged for profit, then amounts that affect the adjusted basis.
Deductions are reduced by 2% of AGI.
Rental of Vacation Home
If rented for fewer than 15 days a year, it is treated as a personal residence. The rent income is excluded from gross income, and mortgage interest and real estate taxes are allowed as itemized deductions, as with any personal interest.
If primarily rental use (residence is rented for 15 days or more in a year and is not used for personal purposes for more than the greater of 14 days or 10% of total days rented), the residence is rental property. The expenses must be allocated bed between personal and rental days if there are personal use days during the year. Deduction of the expenses allocated to rental days can exceed rent income and result in rental loss (deductible)
Personal/Rental Use (residence is rented for 15 days or more and is used for personal purposes for more than the greater of 14 days or 10% of the total days rented, it is a personal/rental use residence, and the expenses must be allocated between personal days and rental days and are only allowed to the extent of rent income.
Real estate and mortgage interest first, then maintenance, utilities, and insurance, THEN if any balance is there, depreciation is allowed.
A little more…
Expenditures incurred for Taxpayer’s benefit or Taxpayer’s Obligation.
Nondeductible. It would be better that someone make a cash gift to them and then they pay the tax themselves, and nobody has to pay taxes unless over the gift exclusion amount.
Personal Expenditures
NONDEDUCTIBLE , except for the tax advice portion of a divorce proceeding.
