Income Flashcards
Income Tax Formula
Gross Income
- Above the Line Deductions
=Adjusted Gross Income (AGI)
- Standard or Itemized Deductions
- Qualified Small Business Income Deduction
= Taxable Income
x Tax Rate
= Gross Tax Liability
- Credits
= Net Tax Liability or Refund
Modified AGI
Adds back certain deductions: foreign earned income, income on US savings bonds, student loan interest, tuition, and fees
Types of Income
- Interest
- Dividend
- Compensation
- Rent & Royalty
- Sale of Property
- Pension and Retirement Plans
Taxable Income
- Salary, wages, tips, and self-employment income
- Bonuses and commissions
- Unemployment pay and severance pay
- Income from rental properties
- Capital gains, stocks, dividends, and Interest
- Bartering
- Virtual, crypto-currencies like bitcoin
Non Taxable Income
- Gifts and inheritances
- Employer-provided health insurance
- Generally, disability pay including worker’s compensation
- Life insurance death benefits
- Child support
- Alimony (for agreements entered after December 31, 2018)
- Adoption assistance benefits
- Personal injury lawsuit settlements
- Scholarship and financial aid income (used for tuition & books)
- Cash rebates
- Assistance from disaster relief
- Welfare benefits
- Qualified employer-provided educational assistance
- Cancelled debts in a bankruptcy case
- Municipal bond earnings
- Federal income tax refund
Non-Taxable Interest income
- Qualified Volunteer Fire Departments
- State and political subdivisions
- D.C.
- Private Activity bonds
- U.S. Possessions and political subdivisions
- Port authorities
- Toll road commissions
- Interest on an IRA
- Utility Service Authorities
- Community Redevelopment Agencies
- Municipal Mutual Funds
Types of Dividends
Ordinary
Section 199A
Qualified
Capital Gain Distribution
Non-Dividend Distribution
Corporate distributions paid out of earnings and profits, dividends on common and preferred stock, taxed at regular tax rate
Ordinary Dividends
Subset of ordinary dividends that are eligible for the qualified business income deduction, dividends from RETT’s
Section 199A Dividends
Type of dividend paid by a US corp. domiciled in the US or a foreign corp. listed on a major stock exchange; holding requirement; taxed at 0%, 15%, or 20% based on the taxpayer’s income
Qualified Dividends
Distributions from mutual funds and RETT’s, taxes at the lower long-term capital gains rate
Capital Gain Distributions
Distributions that are non-taxable because it is a return of the taxpayers cost or basis in stock or security
Non-Dividend Distributions
