Tax Preparer Guide to 1040 Chapter 10 Other Types of Income

Question 1

Taxable Recoveries

Answer 1

A recovery is a return of an amount you deducted or took a credit for in an earlier year. The most common recoveries are refunds, reimbursements, and rebates of itemized deductions. You also may have recoveries of non-itemized deductions (such as payments on previously deducted bad debts) and recoveries of items for which you previously claimed a tax credit.

Question 2

Nontaxable Recovery

Answer 2

If the taxpayer received no benefit from the initial amount, a recovery is not taxable. For example, if a taxpayer did not itemize deductions (and did not receive any federal tax benefit from paying state taxes), and state income tax refund is not taxable

Question 3

Alimony

Answer 3

is a payment to or on behalf of a spouse or former spouse under a divorce or separation instrument. Alimony is fully taxable to the recipient spouse, and the spouse who pays the alimony can deduct the payments as an adjustment to gross income.

Question 4

Royalties

Answer 4

are payments received by a taxpayer based on ownership of certain intangible assets, such as copyrights for literary, musical, or artistic works, or patents for an invention or process.