types of income Flashcards
Earned Income
W-2. Schedule C, Sole Proietorship
Portfolio Income
Interest and dividend income
Passive Income
Real estate rentals where the taxpayer DOES NOT participate
Non-taxable Income
Omitted by tax laws: welfare benefits, child support
Life insurance proceeds, comp for injuries (workers comp)
Interest and Dividends
Portfolio Income
Schedule B
Dividend Revenue is NOT taxable when:
Dividends on life insurance policy
Stock Dividends (dividend is payable in shares of stock -> no opportunity to take cash)
Split Stock -> no cash
Interest Revenue is NOT taxable when:
- from state or municiple bonds
- Puerto Rico bonds
- Guam Bonds
- US Virgin Island Bonds
Interest Revenue IS taxable when:
US Gov Bonds
Corp Bonds
Interest on federal or state tax refunds
Interest income from a bank account
Interest from money damages
Interest income from security deposit
Series EE Bond Interest
Interest Revenue on US EE Bonds are non-taxable if certain conditions are met:
▪ Bonds were bought by a taxpayer or spouse
▪ Taxpayer was 24 or older when buying bonds
▪ Proceeds are used for higher education costs (usually college costs) for taxpayer, spouse, or dependent
▪ This tax advantage is lost if the taxpayer is roughly $79,900 single or HH $119,550
Tax exempt amount is reduced by scholarships received
Foreign Bank Accounts
US Taxpayer who has financial interest in a financial account located outside the US must file FinCEN from 114 “Report of Foreign Bank and Financial Accounts FBAR” if total value exceeds $10K at any time during the calendar year
Due date for the filling is April 15th with a max of 6 month extension. Civil or criminal penalties for failure to file.
Passive income is
All passive activity (gains and losses) are netted to arrive at a single number
Gains -> taxable
Losses -> carried forward indefinitly (cannot be deducted unless it is from real estate rental activity)
Rental Activies
Passive Income
Schedule E
Rent Revnue - Direct Expenses
Rental Activites Losses
AGI is <$100,000 - fully deduct $25,000
AGI is >$150,000 - passive losses can only be offset by passive income (only passive loss -> deduct NOTHING, $25,000 carried forward)
AGI between 100K and 150K - phase out $0.50 on the dollar
AGI $110K, rental loss $30,000
$10,000 * $0.50 = $5,000
$25,000 - $5,000 = $20,000 carried forward
Personal Use Rule
If property is rented out for less than 15days of the year and not tested out again during the year, no rental income is includable and expenses attributable to the rental are not deductible.
Property taxes would not be deductible on Schedule E, but they are deductible on Schedule A (when itemized).
