This chapter discusses various types of gross income that are taxable under the US tax code. It covers 15 common items that are included in gross income, such as compensation, business income, interest, rents and royalties. It also examines specific types of income in more detail such as prizes and awards, scholarships, below-market interest loans, rental income, and alimony. The chapter provides examples and explanations of the tax treatment for each type of income.
This chapter discusses various types of gross income including compensation, business income, rental income, dividends, alimony, and discharge of debt. It provides exhibits on key topics such as the constructive receipt doctrine, community property income, items included in gross income, prizes and awards, scholarships and fellowships, and below-market interest loans. The exhibits describe the relevant tax rules and concepts for each topic in a clear and concise manner.
This document provides exhibits summarizing various exclusions from gross income under Chapter 5 of the CCH Federal Taxation Basic Principles textbook. The exhibits cover topics such as Social Security benefits, interest on U.S. savings bonds, fringe benefits, group life insurance, annuities, damage awards, cafeteria plans, adoption assistance, tuition reduction plans, and dependent care assistance programs. The exhibits include definitions, examples, thresholds, and calculations for determining the tax treatment of these various income items.
This document provides an overview of Chapter 9 topics related to tax credits, prepayments, and the Alternative Minimum Tax (AMT) in the form of exhibits and summaries. The chapter covers various tax credits like the child tax credit, education credits, earned income credit, and foreign tax credit. It also discusses obtaining credit for excess tax withholdings and prepayments. Finally, it summarizes how the AMT system works by adding back certain deductions and preferences to calculate Alternative Minimum Taxable Income.
This document discusses various types of deductions allowed for individuals, including trade or business deductions, deductions for producing income, and deductions for losses. It provides examples of expenses that fall under each category and whether they are deductible "above the line" or "below the line" on a tax return. The document also examines business investigation and start-up expenses in more detail, outlining how they are treated depending on whether the business is similar or new.
This document contains a summary of key concepts regarding deductions for business and investment losses and passive activity losses from Chapter 7. It includes 20 exhibits that cover topics such as abusive tax shelters, at-risk rules, passive activity loss rules, disposing of a passive activity interest, inheriting a passive activity, and material participation. The exhibits provide definitions and examples to explain these complex areas of tax law.
This document provides an overview and exhibits related to itemized deductions allowed on individual tax returns. It discusses various types of itemized deductions including medical expenses, taxes, interest, charitable contributions and others. The exhibits provide more detail on specific itemized deductions such as medical care capital expenditures, transportation and lodging costs, types of allowable interest, and limitations on charitable deductions.
This document summarizes the key rules and concepts around the treatment of capital assets and Section 1231 assets for tax purposes. It defines capital assets and outlines the determination of capital gains and losses. Section 1231 assets are defined as depreciable business property held for over 12 months. The steps for determining Section 1231 gains and losses are provided. The document also summarizes the rules for recapturing depreciation taken under Sections 1245 and 1250.
This document contains 13 exhibits that summarize key provisions related to nonrecognition of gains and losses from property transactions under sections 1031, 1033, and 121 of the Internal Revenue Code. The exhibits cover topics such as like-kind exchanges, involuntary conversions, and the sale of a principal residence. Each exhibit provides an overview of the relevant rules, qualifications, time limitations, and tax treatment for these various property transactions.
This chapter discusses various types of gross income including compensation, business income, rental income, dividends, alimony, and discharge of debt. It provides exhibits on key topics such as the constructive receipt doctrine, community property income, items included in gross income, prizes and awards, scholarships and fellowships, and below-market interest loans. The exhibits describe the relevant tax rules and concepts for each topic in a clear and concise manner.
This document provides exhibits summarizing various exclusions from gross income under Chapter 5 of the CCH Federal Taxation Basic Principles textbook. The exhibits cover topics such as Social Security benefits, interest on U.S. savings bonds, fringe benefits, group life insurance, annuities, damage awards, cafeteria plans, adoption assistance, tuition reduction plans, and dependent care assistance programs. The exhibits include definitions, examples, thresholds, and calculations for determining the tax treatment of these various income items.
This document provides an overview of Chapter 9 topics related to tax credits, prepayments, and the Alternative Minimum Tax (AMT) in the form of exhibits and summaries. The chapter covers various tax credits like the child tax credit, education credits, earned income credit, and foreign tax credit. It also discusses obtaining credit for excess tax withholdings and prepayments. Finally, it summarizes how the AMT system works by adding back certain deductions and preferences to calculate Alternative Minimum Taxable Income.
This document discusses various types of deductions allowed for individuals, including trade or business deductions, deductions for producing income, and deductions for losses. It provides examples of expenses that fall under each category and whether they are deductible "above the line" or "below the line" on a tax return. The document also examines business investigation and start-up expenses in more detail, outlining how they are treated depending on whether the business is similar or new.
This document contains a summary of key concepts regarding deductions for business and investment losses and passive activity losses from Chapter 7. It includes 20 exhibits that cover topics such as abusive tax shelters, at-risk rules, passive activity loss rules, disposing of a passive activity interest, inheriting a passive activity, and material participation. The exhibits provide definitions and examples to explain these complex areas of tax law.
This document provides an overview and exhibits related to itemized deductions allowed on individual tax returns. It discusses various types of itemized deductions including medical expenses, taxes, interest, charitable contributions and others. The exhibits provide more detail on specific itemized deductions such as medical care capital expenditures, transportation and lodging costs, types of allowable interest, and limitations on charitable deductions.
This document summarizes the key rules and concepts around the treatment of capital assets and Section 1231 assets for tax purposes. It defines capital assets and outlines the determination of capital gains and losses. Section 1231 assets are defined as depreciable business property held for over 12 months. The steps for determining Section 1231 gains and losses are provided. The document also summarizes the rules for recapturing depreciation taken under Sections 1245 and 1250.
This document contains 13 exhibits that summarize key provisions related to nonrecognition of gains and losses from property transactions under sections 1031, 1033, and 121 of the Internal Revenue Code. The exhibits cover topics such as like-kind exchanges, involuntary conversions, and the sale of a principal residence. Each exhibit provides an overview of the relevant rules, qualifications, time limitations, and tax treatment for these various property transactions.
This document provides an overview of tax accounting methods and concepts. It discusses the cash method of accounting, which recognizes income when cash is received and expenses when paid. The document provides examples of constructive receipt, where a taxpayer has income even if not yet received in cash. It also briefly mentions the accrual method and hybrid accounting methods. The document appears to be an introductory chapter on tax accounting from a textbook.
This chapter discusses tax planning strategies for individuals, including:
1) General principles such as avoiding income recognition, deferring income or deductions, and accelerating deductions.
2) Differences in tax treatment between self-employed individuals and employees.
3) Family tax planning strategies like income shifting, college savings plans, and divorce settlements.
4) Asset-related planning including the Section 179 deduction, home ownership, and retirement accounts.
This document provides exhibits related to Chapter 18 on taxation of trusts and estates. It includes definitions of key terms like simple trust, complex trust, and grantor trust. It also illustrates the life cycle of a trust and compares the process of computing tax liability for estates/trusts versus individuals. The exhibits provide worksheets and examples for calculating items like gross income, deductions, distribution deductions, and taxable income for estates and trusts.
The document discusses opportunities for lifetime gifts under the current $5 million gift and estate tax exemption. It recommends maximizing annual exclusion gifts and direct payments of tuition and medical expenses before making taxable gifts. For those with large estates, it suggests taking advantage of the $5 million exemption by making lifetime gifts this year and next to potentially remove substantial wealth from one's estate. Credit shelter trusts also remain beneficial despite the portability provision, as portability expires after 2012 and trusts can reduce estate taxes.
This document provides an overview of tax planning strategies for 2010-2011, with a focus on maximizing deductions, credits, and other tax breaks. It discusses various strategies related to deductions and the alternative minimum tax, family and education expenses, investing, business expenses, retirement planning, estate planning, and income tax rates. Key points include tax breaks for homeownership, medical expenses, charitable donations, education savings, and employing children. The document also cautions that many tax rates and breaks could change after 2010.
This document provides an overview of tax planning strategies for the 2010-2011 tax year. It discusses various deductions that taxpayers can take advantage of, including deductions related to homes such as mortgage interest, property taxes, and home equity loans. It also discusses the alternative minimum tax and how it limits some common deductions. The document provides tips and strategies for family and education tax planning, investing, running a business, retirement planning, and estate planning. It aims to help taxpayers minimize their tax liability during a period of uncertainty in tax laws.
Income Tax Consequences Of The Sales And Surrenders Of Life Insurance Policieskirkpatj
The document summarizes IRS tax code provisions related to income taxation of life insurance policies when they are sold or surrendered. It discusses that gains from surrenders or sales by the insured are generally taxed as ordinary income under IRC section 72 or capital gains/losses under section 1001. For investors who purchase policies, gains from resales are capital gains, and gains from death benefits are taxed as ordinary income under section 101. Losses from surrenders generally are not deductible, but may be for business policies.
New Market Tax Credits - Alan Kennard, Wildman HarroldRyan Slack
This document provides an overview of New Markets Tax Credit financing, including:
- The key participants in NMTC transactions, such as investors, leverage lenders, community development entities, and borrowers.
- Examples of projects that qualify for NMTC financing and threshold requirements.
- How the tax credits work and are allocated through community development entities.
- Examples of leveraged deals combining NMTCs with other sources such as bonds or SBA loans.
Here are the key steps:
1. SMSF borrows $1,000,000 from bank via LRBA to acquire units in a unit trust
2. Unit trust (Jones Property Trust) is established with the SMSF and others as unit holders. Unit trust acquires the land.
3. Unit trust undertakes the property development using the borrowed funds
4. Upon completion, the developed land is held via separate titles by the unit trust
5. Income/profits from the developed land/titles are distributed to the unit holders (SMSF). The SMSF uses these distributions to repay the bank loan.
The unit trust structure allows the SMSF to undertake the development via the trust, avoiding
This document summarizes key aspects of three federal tax credit programs - Low-Income Housing Tax Credit, Historic Tax Credit, and New Markets Tax Credit. It provides an overview of the percentage credit and eligibility requirements for each. Additionally, it discusses the common structures used for partnerships and pass-throughs involving tax credit investors. Finally, it notes that the federal tax credit programs are currently under political threat, with proposals to lower credit rates or allow credits to expire without extension.
Capital gains and losses refer to profits and losses from the sale of capital assets like stocks, bonds, property. When capital assets are sold, the difference between the purchase and selling price is the capital gain or loss. These gains and losses affect income taxes, with long term capital gains taxed at lower rates than ordinary income. There are several ways to reduce capital gains taxes, such as purchasing another home within two years of selling an existing one, or deducting capital losses from income up to $3,000 per year. Inherited or gifted property can also result in capital gains or losses depending on value changes. Due to complexity, consulting an accountant is recommended to understand personal capital gains and losses situations.
The document summarizes how corporately-held life insurance can be used as a tax minimization tool for the estate of a shareholder. It provides examples of how deemed dispositions at death can trigger capital gains taxes, and how life insurance death benefits credited to the corporation's capital dividend account can fund tax-free distributions to the estate to avoid double taxation. Specifically, it compares different post-mortem planning strategies, finding that using an insured redemption where some dividends are taxable and some capital preserves half the capital dividend account and results in the lowest total taxes.
- Partnerships do not pay income tax, rather income/expenses flow through to partners and are reported on their individual tax returns. Partnerships must file an informational Form 1065 tax return.
- When forming a partnership, individuals receive a partnership interest in exchange for assets or cash contributed. Gain may be recognized if liabilities assumed by other partners exceed the adjusted basis of property contributed.
- A partner's basis in their partnership interest is adjusted annually for their share of income/losses and distributions received from the partnership. Losses cannot reduce a partner's basis below zero.
El documento habla sobre cómo la industria cinematográfica usa afiches de películas para promocionar las películas y convencer al público de comprar entradas. Explica que los afiches suelen usar poses estereotipadas y clichés reconocibles para representar héroes, villanos, romances y géneros como el terror. También analiza cómo los diseñadores a veces arruinan buenos diseños originales para ajustarse a expectativas comerciales.
The document lists 10 things that God will not ask about on judgment day, focusing more on how people treated others than material possessions or achievements. It suggests God will ask how many people one helped transport or welcomed into their home, how one performed their job and treated neighbors and friends, and about one's character rather than skin color or job title. The passage encourages forwarding the message to others considered "keepers" in one's life.
This document summarizes Adrian Lienhard's PhD defense on dynamic object flow analysis. The defense addressed tracking object references and aliasing at runtime to visualize object flows between classes and features. The thesis proposed explicitly modeling object references using an object flow metamodel to capture activation contexts, object origins, and value transfers. This allows visualizing low-level object dependencies to support tasks like feature location, impact analysis, and test blueprint generation.
The document lists Rotary clubs that have achieved 100% Paul Harris Fellow status as of March 30, 2009. It includes the district, club, country, and date certified for each club. There are over 200 clubs listed from countries around the world, demonstrating the global reach of Rotary's philanthropic goals.
To log into Blackboard, click "User Login" and enter your username as your first initial, last name, underscore, then "bb" and the temporary password "123456". Once logged in, your seminars will be listed and you can click the one you want to enter. LSE Tech support can help change your password in the future if desired.
Smoking may potentially interact with warfarin therapy by increasing its clearance and reducing its anticoagulant effects. A systematic review found smoking was associated with a 12.13% increase in warfarin dose requirements and an additional 2.26 mg per week compared to non-smokers. While earlier studies did not find a relationship between smoking and INR levels, recent evidence suggests smoking can significantly impact warfarin therapy through enzyme-inducing effects.
This document provides an overview of tax accounting methods and concepts. It discusses the cash method of accounting, which recognizes income when cash is received and expenses when paid. The document provides examples of constructive receipt, where a taxpayer has income even if not yet received in cash. It also briefly mentions the accrual method and hybrid accounting methods. The document appears to be an introductory chapter on tax accounting from a textbook.
This chapter discusses tax planning strategies for individuals, including:
1) General principles such as avoiding income recognition, deferring income or deductions, and accelerating deductions.
2) Differences in tax treatment between self-employed individuals and employees.
3) Family tax planning strategies like income shifting, college savings plans, and divorce settlements.
4) Asset-related planning including the Section 179 deduction, home ownership, and retirement accounts.
This document provides exhibits related to Chapter 18 on taxation of trusts and estates. It includes definitions of key terms like simple trust, complex trust, and grantor trust. It also illustrates the life cycle of a trust and compares the process of computing tax liability for estates/trusts versus individuals. The exhibits provide worksheets and examples for calculating items like gross income, deductions, distribution deductions, and taxable income for estates and trusts.
The document discusses opportunities for lifetime gifts under the current $5 million gift and estate tax exemption. It recommends maximizing annual exclusion gifts and direct payments of tuition and medical expenses before making taxable gifts. For those with large estates, it suggests taking advantage of the $5 million exemption by making lifetime gifts this year and next to potentially remove substantial wealth from one's estate. Credit shelter trusts also remain beneficial despite the portability provision, as portability expires after 2012 and trusts can reduce estate taxes.
This document provides an overview of tax planning strategies for 2010-2011, with a focus on maximizing deductions, credits, and other tax breaks. It discusses various strategies related to deductions and the alternative minimum tax, family and education expenses, investing, business expenses, retirement planning, estate planning, and income tax rates. Key points include tax breaks for homeownership, medical expenses, charitable donations, education savings, and employing children. The document also cautions that many tax rates and breaks could change after 2010.
This document provides an overview of tax planning strategies for the 2010-2011 tax year. It discusses various deductions that taxpayers can take advantage of, including deductions related to homes such as mortgage interest, property taxes, and home equity loans. It also discusses the alternative minimum tax and how it limits some common deductions. The document provides tips and strategies for family and education tax planning, investing, running a business, retirement planning, and estate planning. It aims to help taxpayers minimize their tax liability during a period of uncertainty in tax laws.
Income Tax Consequences Of The Sales And Surrenders Of Life Insurance Policieskirkpatj
The document summarizes IRS tax code provisions related to income taxation of life insurance policies when they are sold or surrendered. It discusses that gains from surrenders or sales by the insured are generally taxed as ordinary income under IRC section 72 or capital gains/losses under section 1001. For investors who purchase policies, gains from resales are capital gains, and gains from death benefits are taxed as ordinary income under section 101. Losses from surrenders generally are not deductible, but may be for business policies.
New Market Tax Credits - Alan Kennard, Wildman HarroldRyan Slack
This document provides an overview of New Markets Tax Credit financing, including:
- The key participants in NMTC transactions, such as investors, leverage lenders, community development entities, and borrowers.
- Examples of projects that qualify for NMTC financing and threshold requirements.
- How the tax credits work and are allocated through community development entities.
- Examples of leveraged deals combining NMTCs with other sources such as bonds or SBA loans.
Here are the key steps:
1. SMSF borrows $1,000,000 from bank via LRBA to acquire units in a unit trust
2. Unit trust (Jones Property Trust) is established with the SMSF and others as unit holders. Unit trust acquires the land.
3. Unit trust undertakes the property development using the borrowed funds
4. Upon completion, the developed land is held via separate titles by the unit trust
5. Income/profits from the developed land/titles are distributed to the unit holders (SMSF). The SMSF uses these distributions to repay the bank loan.
The unit trust structure allows the SMSF to undertake the development via the trust, avoiding
This document summarizes key aspects of three federal tax credit programs - Low-Income Housing Tax Credit, Historic Tax Credit, and New Markets Tax Credit. It provides an overview of the percentage credit and eligibility requirements for each. Additionally, it discusses the common structures used for partnerships and pass-throughs involving tax credit investors. Finally, it notes that the federal tax credit programs are currently under political threat, with proposals to lower credit rates or allow credits to expire without extension.
Capital gains and losses refer to profits and losses from the sale of capital assets like stocks, bonds, property. When capital assets are sold, the difference between the purchase and selling price is the capital gain or loss. These gains and losses affect income taxes, with long term capital gains taxed at lower rates than ordinary income. There are several ways to reduce capital gains taxes, such as purchasing another home within two years of selling an existing one, or deducting capital losses from income up to $3,000 per year. Inherited or gifted property can also result in capital gains or losses depending on value changes. Due to complexity, consulting an accountant is recommended to understand personal capital gains and losses situations.
The document summarizes how corporately-held life insurance can be used as a tax minimization tool for the estate of a shareholder. It provides examples of how deemed dispositions at death can trigger capital gains taxes, and how life insurance death benefits credited to the corporation's capital dividend account can fund tax-free distributions to the estate to avoid double taxation. Specifically, it compares different post-mortem planning strategies, finding that using an insured redemption where some dividends are taxable and some capital preserves half the capital dividend account and results in the lowest total taxes.
- Partnerships do not pay income tax, rather income/expenses flow through to partners and are reported on their individual tax returns. Partnerships must file an informational Form 1065 tax return.
- When forming a partnership, individuals receive a partnership interest in exchange for assets or cash contributed. Gain may be recognized if liabilities assumed by other partners exceed the adjusted basis of property contributed.
- A partner's basis in their partnership interest is adjusted annually for their share of income/losses and distributions received from the partnership. Losses cannot reduce a partner's basis below zero.
El documento habla sobre cómo la industria cinematográfica usa afiches de películas para promocionar las películas y convencer al público de comprar entradas. Explica que los afiches suelen usar poses estereotipadas y clichés reconocibles para representar héroes, villanos, romances y géneros como el terror. También analiza cómo los diseñadores a veces arruinan buenos diseños originales para ajustarse a expectativas comerciales.
The document lists 10 things that God will not ask about on judgment day, focusing more on how people treated others than material possessions or achievements. It suggests God will ask how many people one helped transport or welcomed into their home, how one performed their job and treated neighbors and friends, and about one's character rather than skin color or job title. The passage encourages forwarding the message to others considered "keepers" in one's life.
This document summarizes Adrian Lienhard's PhD defense on dynamic object flow analysis. The defense addressed tracking object references and aliasing at runtime to visualize object flows between classes and features. The thesis proposed explicitly modeling object references using an object flow metamodel to capture activation contexts, object origins, and value transfers. This allows visualizing low-level object dependencies to support tasks like feature location, impact analysis, and test blueprint generation.
The document lists Rotary clubs that have achieved 100% Paul Harris Fellow status as of March 30, 2009. It includes the district, club, country, and date certified for each club. There are over 200 clubs listed from countries around the world, demonstrating the global reach of Rotary's philanthropic goals.
To log into Blackboard, click "User Login" and enter your username as your first initial, last name, underscore, then "bb" and the temporary password "123456". Once logged in, your seminars will be listed and you can click the one you want to enter. LSE Tech support can help change your password in the future if desired.
Smoking may potentially interact with warfarin therapy by increasing its clearance and reducing its anticoagulant effects. A systematic review found smoking was associated with a 12.13% increase in warfarin dose requirements and an additional 2.26 mg per week compared to non-smokers. While earlier studies did not find a relationship between smoking and INR levels, recent evidence suggests smoking can significantly impact warfarin therapy through enzyme-inducing effects.
The document proposes an object flow analysis technique to track how objects are passed between classes during program execution. It captures all references to an object, models the transfer of references through instantiation, field access, method calls and returns, and represents the flows using a graph with nodes for objects and relationships for passing references. This provides insight into how classes exchange objects and how objects propagate through the system.
The document discusses how to code for accelerometer and Core Location in Objective-C. It provides code snippets for reading accelerometer data using UIAccelerometer and handling orientation changes. It also explains how to get the user's current location using the Core Location framework by initializing a CLLocationManager instance and setting a delegate to receive location updates.
This document summarizes several studies investigating the relationship between smoking and venous thromboembolism (VTE) risk. The studies found:
1) Current smoking was associated with a higher risk of VTE compared to never smokers, with a positive dose-response relationship. Former smokers had the same risk as never smokers.
2) Heavier smokers (>20 pack-years) had higher risks of total and provoked VTE compared to never smokers. The risk of provoked VTE increased with more pack-years of smoking.
3) The modestly increased risks of VTE in current or former women smokers were attenuated after adjusting for smoking-related diseases and decreased physical activity, suggesting an indirect relationship between smoking
This document provides an overview and introduction to Domain-Driven Design (DDD). It discusses what DDD is, why it is used, and its main building blocks. DDD is an approach to software development that bases the design around the domain model. The document outlines key DDD concepts like entities, value objects, aggregates, repositories, and services. It also discusses patterns like ubiquitous language, bounded contexts, and anticorruption layers. Examples are provided throughout to illustrate DDD concepts and how they apply to complex domain models.
The document discusses key aspects of the US tax system including:
- Congress creates tax law which the IRS enforces through assessment and collection departments.
- The IRS has authority to audit taxpayers and summon records to examine income and deductions.
- Noncompliance with tax laws results in penalties for issues like filing late, failing to pay taxes owed, or filing a fraudulent return. Statutes of limitation apply.
- Taxpayers have rights that are outlined in publications and when dealing with the IRS regarding audits, appeals and collections.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms.
This document discusses intermediate code in compilers. It begins by describing the stages of a compiler from source code to intermediate code to machine code. It then provides an example of translating a simple C program to intermediate code. The remainder of the document describes aspects of a simple virtual machine that can execute intermediate code, including instructions like LIT, LOD, STO, and OPR, and an example of intermediate code generated for a small C program.
This document provides an overview and objectives of a modular workbook on decimal numbers. It introduces decimals and their place value, explaining how to read, write, name, compare, order, and round decimal numbers. Exercises are included to help learners evaluate their understanding of decimals.
The document provides information about programs and services offered by the San Diego LGBT Community Center, the second oldest and third largest LGBT community center in the US. The Center has over 50 programs that serve thousands in the LGBT community each year, including programs focused on youth, families, counseling, and advocacy. Key youth programs discussed include a youth center, housing project, and scholarships to support LGBT youth and families.
The document provides a master test specification for testing the Simple Railroad Command Protocol (SRCP). It outlines the test plan including using black box and white box testing techniques. The test plan defines the test levels, environment, tools, and schedule. Key test areas are identified as network communication, SRCP connection modes, and general valid/invalid requirements. Requirements for testing are specified, including general requirements related to SRCP servers, commands, replies, and the handshake process.
This document provides an overview of Chapter 3 and its exhibits on individual taxation. It includes 15 exhibits that cover topics such as the federal tax formula, definitions of gross income and adjusted gross income, personal and dependency exemptions, standard deductions, itemized deductions, filing status requirements, tax rates and schedules, self-employment taxes, and special rules for dependents. The exhibits provide definitions, examples, and criteria for key concepts in individual income taxation.
This document provides an overview of taxation of trusts and estates, including:
1) Key definitions such as simple vs complex trusts, grantor trusts, and income in respect of a decedent.
2) The tax treatment of income and deductions for estates and trusts differs from individuals, including personal exemptions and the distribution deduction.
3) Estates and trusts may receive income in respect of a decedent, which is taxable to the estate or trust and was earned by the decedent but not reported on their final return.
This document discusses whether Social Security benefits are taxable and provides worksheets and examples to determine if benefits are taxable. It explains that Social Security benefits may be taxable if an individual has other substantial income in addition to benefits. It provides thresholds for taxable Social Security income based on filing status. Through examples, it illustrates how to calculate if benefits are taxable by comparing total income to the taxable base amounts.
You may have to pay federal income taxes on your Social
Security benefits. This usually happens only if you have
other substantial income (such as wages, self-employment,
interest, dividends and other taxable income that must be
reported on your tax return) in addition to Social Security
benefits.
This chapter discusses special tax rules that apply to C corporations. It covers topics like the definition of a corporation, different types of C corporations like personal service corporations, and rules around tax years and accounting methods. It also summarizes the C corporation tax formula and compares tax treatment between C corporations and individuals. Finally, it provides examples of income items, exclusions, and deductions that have special rules for C corporations, such as organizational expenses, dividends received deductions, and charitable contributions.
Chapter
4
Gross Income
OBJECTIVES
After completing Chapter 4, you should be able to:
1. Define and distinguish among the various concepts of income: economic, accounting, and legal.
2. Recognize the various items included in gross income.
3. Determine when items are included in income.
4. Understand the rules governing alimony.
5. Differentiate alimony from child support.
6. Comprehend the rules for recapturing alimony.
7. Understand the rules governing the discharge of indebtedness for both solvent and insolvent taxpayers.
OVERVIEW
Gross income, according to the Internal Revenue Code, includes all income unless specifically exempted by law. This comprehensive definition requires a more probing discussion of what must be included in income. Further, we must concern ourselves with “how much” must be included in income and what portion of total income may be excluded.
The Concept of Income
A frustrating characteristic of the English language is that a single term can be used to express a variety of concepts. Take the concept of income: economists, the courts, and accountants use this term, but for each, the definition imparts a singular view.
¶4001
ECONOMIC INCOME
The economic concept of income is more general than the accounting definition. The most commonly accepted definition of economic income is that of J. R. Hicks. He defines economic income as being “the maximum amount a person can consume during a week and still expect to be as well-off at the end of the week as he was at the beginning.” J. R. Hicks, Value and Capital (Oxford: Clarendon Press, 1946), p. 172. This assumes that there were no capital contributions or withdrawals during the period measured. The economist’s definition is not practical for tax purposes because the concept of “well-being” is not capable of objective measurement. The economic concept of income places a heavy emphasis on the future. No objective rules exist for determining well-being at any moment in time. Economists must deal in terms of real wealth, which includes holding gains and losses rather than monetary wealth alone. H. C. Simons maintained, “The precise, objective measurement of income implies the existence of perfect markets from which one, after ascertaining quantities, may obtain the prices necessary for routine valuation of all possible inventories of commodities, services, and property rights.” Personal Income Taxation (Chicago: University of Chicago Press, 1921), p. 50. Since no such markets exist where the necessary prices for valuation may be obtained, the economic concept is an inappropriate measure of taxable income.
¶4015
THE LEGAL/TAX CONCEPT OF INCOME
The legal concept of income is also less precise than that of the accountant. Congress has not defined income, but has specified how particular items of income are to be taxed. The concept of income has crystalized through a series of court cases. The legal concept is different from the economic and accounting concepts. Gross income includes “ ...
This is a 30 minute presentation on a Safe Money Retirement savings alternative to traditional IRA, 401k and other government sponsored retirement savings plans.
The Simpson Family Trust had $150,000 in assessable income and $50,000 in deductions in the 2021-2022 tax year. The trust deed allocates 60% of trust income to Helen, who is 36 years old with no legal disability, and 30% to Daniel, who is 17 years old. Daniel also earned $12,000 from a part-time job. The trustee will be taxed on Daniel's $30,000 trust income and $10,000 balance at the Division 6AA rate, while Helen will be taxed on her $60,000 entitlement herself.
ACCT323 Final exam1.Which of the following represents .docxannetnash8266
ACCT323 Final exam
1.
Which of the following represents the largest percentage of state tax revenue?
Sales tax
Individual income tax
Other
Property tax
None of these
2.
Congress recently approved a new, bigger budget for the IRS. What taxation concept evaluates the cost of administering our tax law?
Convenience
Economy
Certainty
Equity
None of these
3.
The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of _______.
A sin tax to discourage undesirable behavior
A government fine
An earmarked tax
Both A and C
None of these
4.
If Susie earns $750,000 in taxable income, how much tax will she pay as a single taxpayer for year 2012?
$231,639.50
$262,500.00
$239,261.00
$236,435.00
None of these
5.
Which of the following is not considered a primary authority?
Tax Court case.
Regulation.
Revenue Ruling.
Tax service.
None of these.
6.
Which of the following is not a factor that determines whether a taxpayer is required to file a tax return?
rev: 03_21_2013_QC_28372
Filing status.
Taxpayer's gross income.
Taxpayer's occupation.
Taxpayer's age.
None of these.
7
.
Corporations are required to file a tax return only if their taxable income is greater than:
$0.
$1,000.
$600.
$750.
None of these. Corporations are always required to file a tax return.
8.
Lavonda discovered that the U.S. Circuit Court of Appeals for the Federal Circuit has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case:
Tax Court only.
U.S. Court of Federal Claims only.
U.S. District Court only.
Tax Court or the U.S. District Court.
Tax Court or the U.S. Court of Federal Claims.
9.
Jason's employer pays year-end bonuses each year on December 31. Jason, a cash basis taxpayer, would prefer to not pay tax on his bonus this year (and actually would prefer his daughter to pay tax on the bonus). So, he leaves town on December 31, 2011 and has his daughter, Julie, pick up his check on January 2nd, 2012. Who reports the income and when?
Julie in 2011
Julie in 2012
Jason in 2011
Jason in 2012
None of these
Top of Form
10.
Investing in municipal bonds to avoid paying tax on interest earned and to earn a higher after-tax yield is an example of:
conversion
tax evasion
timing
income shifting
None of these
Bottom of Form
11.
Which of the following increases the benefits of income deferral?
increasing tax rates
smaller after-tax rate of return
larger after-tax rate of return
smaller magnitude of transactions
None of these
12.
Which of the following is an example of the timing strategy?
A corporation paying its shareholders a $20,000 dividend
A parent employing her child in the family business
A taxpayer gifting stock to his children
A cash-basis busi.
Fundamentals of Taxation 2005 – A Forms ApproachSolutions Manu.docxbudbarber38650
Fundamentals of Taxation 2005 – A Forms Approach
Solution
s Manual
PAGE CHAPTER 14DISCUSSION QUESTIONS AND PROBLEMS
Discussion Questions
1.Discuss the formation of a partnership. Is any gain or loss recognized? Explain?
2. What entity forms are considered partnerships for federal income tax purposes?
3. How does taxation for the corporate form and the partnership form differ?
4. What is the concept of basis? In your discussion, differentiate between outside basis and inside basis.
5. Elaborate on the term basis-in – basis-out. What does that phrase mean in the context of a partnership formation?
6. How can two partners, each with a 50% interest in a partnership, have different amounts of outside basis at the formation of a partnership? Shouldn’t the two partners contribute the same amount to have the same interest?
7. When a partnership receives an asset from a partner, does the partnership ever recognize a gain? What is the basis of the asset in the hands of the partnership after contribution?
8. Discuss the concept of steps into the shoes. Does how this concept pertains to the partnership, the partners, or both?
9. Why would smaller partnerships (and other businesses for that matter) use only the tax basis of accounting, which does not follow GAAP?
10. How is depreciation calculated by the partnership when a partner contributes a business asset?
11. Discuss the concepts of ordinary income and separately stated items concerning partnerships. When must a partnership item of income or loss be separately stated and why?
12. Can a partner have a salary from a partnership? Why? What is a guaranteed payment?
13. Are guaranteed payments treated as an ordinary income items or as separately stated items?
14. Is the Section 179 expense deduction allowed for partnerships? If so, is Section 179 an ordinary income item or a separately stated item? Why?
15. If a partner owns a 20% interest, does that necessarily mean that he or she will receive 20% of the net income from the partnership? Explain?
16. Is partnership income considered self-employment income? If so, how is it calculated?
17. Why must some income and gain items be separately stated in a partnership?
18. Explain why nontaxable income and nondeductible expenses increase or reduce outside basis?
19. When is it mandatory that a partner calculate his or her partner interest basis (outside basis)? What items affect the outside basis of a partner?
20. How does a partner’s share of partnership liabilities affect his or hers outside basis?
21. The general rule is that partners do not recognize any gain when he or she receives a distribution. In what circumstances might a partner recognize a gain on a current distribution?
22. Define precontribution gain? What causes a partner to recognize it?
23. Describe the rules concerning the basis of property distributed to a partner. How does the concept of “basis-in, basis-out” apply to part.
This document provides an overview and summary of preserving retirement assets through IRA rollovers. It discusses the options available when changing jobs, including taking a lump sum distribution, leaving funds in the previous employer's plan, or rolling funds over to a new employer's plan or a traditional IRA. It notes that taking a lump sum distribution can result in taxes and penalties that reduce the available retirement funds. The document then provides examples showing how much more money could be available in retirement by rolling funds over instead of taking a lump sum. It discusses the details and benefits of direct and indirect IRA rollovers.
This chapter discusses gross income and exclusions. It defines gross income for tax purposes and explains when taxpayers recognize income. It discusses the various sources of income, including income from services, property, annuities, and other sources. It also covers the major exclusion provisions that allow taxpayers to exclude or defer certain types of income from gross income, such as municipal bond interest, home sale gains up to $250,000, education-related exclusions, and foreign earned income up to $97,600.
This document provides learning objectives and content about individual income tax computation and tax credits. It covers determining regular and alternative minimum tax liability, computing employment and self-employment taxes, describing types of tax credits including refundable and nonrefundable personal and business credits, and explaining taxpayer filing requirements and penalties. Examples are provided to illustrate concepts like kiddie tax, education credits, and late payment penalties.
Unrelated Business Income Tax Information for Charities & Other Nonprofits CBIZ, Inc.
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This is the first half of a presentation I gave at Pace University Law School's Program: New Directions: Practical Skills for Returning to Law Practice
http://web.pace.edu/page.cfm?doc_id=29130
This document provides an overview of micro captives and the 831(b) election for small insurance companies. It discusses how micro captives allow profitable businesses to deduct insurance premium payments of up to $1.2 million annually. The presenters then explain the key aspects of micro captive structures, including risk distribution requirements, premium funding, financial requirements, and policy types that can be written. The tax benefits of micro captives are outlined, such as deferring tax on underwriting profits and accessing funds for retirement or estate planning purposes.
This document discusses various tax representation techniques. It begins by outlining the typical audit process, noting that audits are usually office or field audits and provide tips for cooperating with audits. It then discusses options for appealing an auditor's findings like fast track settlements, which use mediators to resolve cases in around 60 days. The document also covers collection issues like different collection tiers, working with revenue officers, tax liens, levies, and collection due process hearings which allow taxpayer challenges to liens or levies.
The document discusses different types of business entities that could be formed for a new catering business, including corporations, partnerships, and limited liability companies. It recommends that the sisters form an S corporation or LLC to obtain limited liability protection while also benefitting from the tax advantages of a pass-through entity that allows losses to offset their personal income. The chapter covers topics like corporate versus individual tax rules, deductions, and the dividends received deduction.
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The document discusses accounting periods and methods for partnerships and S corporations. It states that a partnership's tax year must end on the tax year of the majority interest partners, or if no majority, the principal partners. If there is no majority or principal partners, the tax year that results in the least aggregate deferral of income is used. Exceptions allow other fiscal year ends if valid business purposes or section 444 elections are met. The document also discusses short tax years, accounting methods, and provisions that mitigate the effects of an arbitrary accounting period.
Hazel Brown owns an arts and crafts store. In 2012, she is planning to sell the store equipment she purchased in 2009 for $450,000 and has since depreciated.
- If she sells the equipment for $128,000, she will have a $53,040 gain. This full amount will be treated as ordinary income under §1245 recapture rules rather than potential §1231 capital gain, since the gain is less than her total depreciation of $375,040.
- If she sells the equipment for more than its original $450,000 cost, the portion of gain up to her $375,040 in total depreciation would be ordinary income under §12
Maurice inherited $500,000 and invested it in various assets on the advice of a financial advisor. He is now considering selling some investments and moving money between bonds. The summary provides an overview of the tax treatment of capital gains and losses, including the classification of different assets as capital or ordinary assets, what qualifies as a "sale or exchange," and how gains or losses from various transactions are treated for tax purposes. It also notes that long-term capital gains may be taxed at a lower rate than ordinary gains.
Alice owns a house that she inherited from her mother 7 months ago. She is considering selling the house to her nephew Dan for $275,000 and thinks she will have no gain or loss. As Alice's tax advisor, you need information to determine the tax consequences, such as whether Alice received the house as a gift or inheritance, the basis of the property, and whether it has been her primary residence. You will also need to advise Alice on the tax consequences of selling her car that she has owned for 4 months, as well as transactions involving the sale of stock at a loss and subsequent repurchase.
The document discusses several tax credits available to individuals and businesses, including:
1) Education tax credits that can help offset tuition and other education expenses.
2) The research and experimentation tax credit that incentives private sector investment in research.
3) Tax credits for rehabilitation expenditures, hiring targeted groups of employees, and other activities.
Bob and Carol paid different amounts of federal income tax even though they had identical incomes, deductions, and investments. Carol paid $15,000 more than Bob due to an oversight in the treatment of interest from private activity bonds they both owned. These bonds were issued in 2010 and interest from such bonds is not a tax preference item for the alternative minimum tax in that year. After reviewing the returns, Adam determined Carol was eligible for a $15,000 refund due to an error on her Form 6251 in treating the bond interest as a tax preference.
The rental activity is incidental if gross rental income is less than 2% of all gross income from the trade or business of the taxpayer for the taxable year.
The document discusses itemized deductions for individuals, including medical expenses, taxes, interest expenses, and qualified residence interest. It provides examples to illustrate how these deductions are calculated and applied. It also summarizes how these deductions would apply to the specific scenario of John and Susan Williamson purchasing their first home, as presented in an earlier example.
Morgan has accepted a new sales job that requires travel and some entertainment expenses. She will work out of her apartment and be reimbursed for some travel expenses. Some of Morgan's expenses may be deductible, including transportation between client sites, home office expenses if the office space is exclusively used for work, and moving expenses if she meets certain tests. However, commuting costs and some education or entertainment expenses would not be deductible.
Dr. Payne correctly calculated the depreciation expense for his dental practice assets using MACRS depreciation rates. He will also be able to claim depreciation deductions for the rental properties he converted his original residence and purchased condo into, using the fair market value of the residence as its basis since it was previously used for personal purposes. The document provides an overview of depreciation, amortization, and depletion deductions for business and rental property assets, and examples and rules for calculating MACRS depreciation using conventions like half-year and mid-quarter.
Martha experienced significant financial losses in the current year. She loaned a friend money to start a business that failed, resulting in a bad debt. She also lost money investing in a pharmaceutical company that declared bankruptcy. Additionally, her sole proprietorship bookstore experienced losses due to increased competition. Martha is hoping that tax law provisions related to deductions and losses can provide some relief.
Dr. Payne has incorrectly calculated some of the business expenses deductible on Schedule C of his tax return. Specifically, the contributions to political campaigns are not deductible, and hobby losses are only deductible up to the amount of hobby income. Dr. Payne should re-examine the expenses from his dental practice to ensure they meet the requirements of being ordinary, necessary, and substantiated to be deductible as trade or business expenses.
Paul received a $1,500 bonus from his summer internship employer that must be included in his gross income as it was compensation for services. His $400 monthly stipend from his graduate assistantship teaching accounting must also be included in gross income. However, the $6,000 tuition waiver can be excluded. Most of the damages from his accident settlement can be excluded from income as compensation for personal physical injuries, except the punitive damages which are taxable.
Dr. Cliff Payne, a dentist, opened a sole proprietorship dental practice at the beginning of the year with a December 31 year-end. He contracted to have a building constructed for his medical practice and used extra money to purchase stock. The document discusses the calculation of gross income for Dr. Payne's dental practice and whether he correctly calculated it as the $385,000 billed to patients. It then provides an overview of the concepts of gross income, accounting periods and methods, income sources including dividends and partnerships, and other inclusions like imputed interest.
Polly supports her unemployed husband Nick, stepdaughter Paige, and family friend Maude who lived with Polly. Paige works part-time but trains for a college scholarship. Nick left in March. Polly sold her wedding rings for $8,000. Polly may be able to claim dependency exemptions for Paige and Maude depending on whether they meet the tests for qualifying child, qualifying relative, gross income, support and other rules. Polly should review her tax situation considering these dependency exemption rules.
This document provides an overview of the statutory and administrative sources of US tax law, as well as the federal judicial system for tax disputes. It discusses the Internal Revenue Code, Treasury regulations, revenue rulings, revenue procedures, letter rulings, and other administrative pronouncements. It also describes the four courts that have original jurisdiction over tax cases and their roles, as well as the appeals process. Precedent and citations for Tax Court, District Court, Court of Appeals, and Supreme Court decisions are covered.
The document provides an overview of US taxation including:
1) It describes different types of taxes such as income taxes, property taxes, employment taxes, and gift/estate taxes.
2) It discusses key concepts related to taxation including tax bases, tax rates, tax structures, and criteria for evaluating tax systems.
3) It provides examples and explanations of how different taxes could apply to a fictional married couple described in the introductory scenario.
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Navigating the world of forex trading can be challenging, especially for beginners. To help you make an informed decision, we have comprehensively compared the best forex brokers in India for 2024. This article, reviewed by Top Forex Brokers Review, will cover featured award winners, the best forex brokers, featured offers, the best copy trading platforms, the best forex brokers for beginners, the best MetaTrader brokers, and recently updated reviews. We will focus on FP Markets, Black Bull, EightCap, IC Markets, and Octa.
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Adani SEBI investigation revealed that the latter had sought information from five foreign jurisdictions concerning the holdings of the firm’s foreign portfolio investors (FPIs) in relation to the alleged violations of the MPS Regulations. Nevertheless, the economic interest of the twelve FPIs based in tax haven jurisdictions still needs to be determined. The Adani Group firms classed these FPIs as public shareholders. According to Hindenburg, FPIs were used to get around regulatory standards.
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Building Your Employer Brand with Social MediaLuanWise
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https://www.productmanagementtoday.com/frs/26903918/understanding-user-needs-and-satisfying-them
We know we want to create products which our customers find to be valuable. Whether we label it as customer-centric or product-led depends on how long we've been doing product management. There are three challenges we face when doing this. The obvious challenge is figuring out what our users need; the non-obvious challenges are in creating a shared understanding of those needs and in sensing if what we're doing is meeting those needs.
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2. Chapter 4 Exhibits
1. Constructive Receipt Doctrine
2. Community Property Income
3. Items Included in Gross Income
4. Compensation vs. Gift
5. Prizes and Awards
6. Employee Achievement Awards
7. Scholarships and Fellowships
8. Business Income
9. Below-Market Interest Loans—Types of Loans
Chapter 4, Exhibit Contents A CCH Federal Taxation Basic Principles 2 of 31
3. Chapter 4 Exhibits
10. Below-Market Interest Loans—Tax Effect
11. Rental Income
12. Tenant Improvements
13. Dividend Income
14. Alimony—Post-1984 Agreements
15. Alimony and Child Support (Post-1984 Divorces)
16. Alimony Recapture
17. Discharge of Debt
18. Discharge of Debt—Bankruptcy
Chapter 4, Exhibit Contents B CCH Federal Taxation Basic Principles 3 of 31
4. Constructive Receipt Doctrine
“When is income taxable?”
Generally, any compensation granted to an individual to
which the individual has an absolute right is regarded
as constructively received income.
Chapter 4, Exhibit 1 CCH Federal Taxation Basic Principles 4 of 31
5. Community Property Income
Property acquired after marriage is community property.
Income from community property is community income
Property acquired before marriage remains separate property.
What happens to income from separate property?
Chapter 4, Exhibit 2a CCH Federal Taxation Basic Principles 5 of 31
6. Community Property Income
CA Rule – Income from separate property remains separate.
Applies to California, Arizona, Nevada, New
Mexico, Washington and Wisconsin.
TX Rule - Income from separate property is community
income. Therefore, if spouses filed separate
returns, the income would be shared between them.
Applies to Texas, Idaho and Louisiana.
Chapter 4, Exhibit 2b CCH Federal Taxation Basic Principles 6 of 31
7. Items Included in Gross Income
Code Sec. 61(a) lists 15 items that generally must be included in gross income:
Compensation for services, Annuities
including fees, commissions, fringe Income from life insurance and
benefits, and similar items endowment contracts
Gross income derived from business Pensions
Gain derived from dealings in Income from discharge of
property indebtedness
Interest Distributive share of partnership
Rents gross income
Royalties Income in respect of a decedent
Dividends Income from an interest in an estate
Alimony and separate maintenance or trust
payments
Special circumstances may result in the exclusion or deferral of any of these items.
Chapter 4, Exhibit 3 CCH Federal Taxation Basic Principles 7 of 31
8. Compensation vs. Gift
The facts and circumstances dictate whether something received is
taxable compensation or a tax-free gift
Compensation is generally included in gross income.
Gifts are generally excluded from gross income.
Example
FACTS: Grandma offers 16-year-old Billy $10,000 if he quits smoking and playing pinball over the next
five years. He does, and upon attaining the age of 21, she pays him $10,000.
QUESTION: Is the $10,000 received by Billy taxable income or a gift?
SOLUTION: The $10,000 is taxable income since there were strings attached.
Chapter 4, Exhibit 4 CCH Federal Taxation Basic Principles 8 of 31
9. Prizes and Awards
Prizes and awards are generally taxable based on fair market value at time
of receipt.
However, if ALL of the following 4 conditions occur, then they are
excludable :
1. Connected with the fields of science, charity, or the arts
2. Involuntary selection process (i.e., through no effort of recipient)
3. No future services required of recipient
4. Assigned to a governmental agency or tax-exempt charitable
organization (rather than constructively received).
Chapter 4, Exhibit 5a CCH Federal Taxation Basic Principles 9 of 31
10. Prizes and Awards
Example
FACTS: Mother Tanesha, a U.S. citizen, is awarded the Nobel Peace Prize, which includes a
$500,000 cash award. The award was unsolicited and no future services were required of
Mother Tanesha. Furthermore, she endorsed the check over to the Sisters of Charity, a
qualified tax-exempt charity, rather than depositing it in her bank account.
QUESTION: Does Mother Tanesha have taxable income?
SOLUTION: YES! She constructively received the $500,000 when she endorsed the check
over to the charity. By endorsing the check, she exercised dominion and control over the
money, even though she did not deposit it. She could have avoided taxable income if she
had directed the Nobel Committee to pay the Sisters of Charity directly.
Chapter 4, Exhibit 5b CCH Federal Taxation Basic Principles 10 of 31
11. Employee Achievement Awards
Employee achievement awards are generally taxable, except that the
value of awards for length of service or safety achievement delivered
at a “meaningful presentation” are excluded up to
1. $400 if the plan is non-qualified (i.e., discriminates in favor of
highly paid employees), or
2. $1,600 if the plan is qualified (i.e., does not discriminate in favor
of highly paid employees).
(If an employee receives both qualified and nonqualified awards, then
the overall exclusion may not exceed $1,600.)
Chapter 4, Exhibit 6 CCH Federal Taxation Basic Principles 11 of 31
12. Scholarships and Fellowships
The value of scholarships or fellowships are generally taxable, but may be
excluded if they are:
1. To a degreed candidate attending an educational institution
2. For tuition and course related material (not room and board)
3. As a result of academic achievement, and not connected with
services provided.
Example: A “scholarship” received by a beauty queen for winning the
Miss Georgia Peanut contest would actually be a taxable award for
services rendered, even if she were a degreed candidate and the money
was spent on tuition. It would really be compensation disguised as a
scholarship.
Chapter 4, Exhibit 7 CCH Federal Taxation Basic Principles 12 of 31
13. Business Income
Sole proprietor
Include all business income (less cost of goods sold) in
gross income.
Partnerships and S corps
Partnerships and S corps are not taxed, but their taxable
income is taxed to individual partners and shareholders.
Partners and shareholders must include their proportionate
share of business income in their gross income, regardless
of whether or not the income was distributed.
Chapter 4, Exhibit 8 CCH Federal Taxation Basic Principles 13 of 31
14. Below-Market Interest Loans—Types of Loans
What types of loans are subject to imputed interest calculations?
All of the following loans are subject to imputed interest:
Gift loans (made out of love or generosity). Note that the “gift” is NOT the principal
portion of the loan, rather, the amount of interest that is below market.
Compensation-related loans (employer loans to employees)
Corporation-shareholder loans (a corporation’s loans to ANY of its shareholders)
If all of the following apply:
Interest charged is less than the applicable federal rate (AFR)
Sum of all loans between lender and borrower exceeds $10,000
The loan was made after June 7, 1984
Chapter 4, Exhibit 9 CCH Federal Taxation Basic Principles 14 of 31
15. Below-Market Interest Loans—Tax Effect
The two steps for each of the three below-market interest
loans are not easy to conceptualize. See if this makes sense:
Step 1: “Pretend” that the borrower has “paid” the
imputed interest to the lender as an interest payment.
Step 2: “Pretend” that the lender has returned the
imputed interest back to the borrower as either a gift,
compensation, or a dividend.
Chapter 4, Exhibit 10a CCH Federal Taxation Basic Principles 15 of 31
16. Below-Market Interest Loans—Tax Effect
What is the tax effect of imputed interest on below-market loans?
Type of Loan Step Lender Borrower
Gift Loan Step 1: Interest income. Interest expense.
Step 2: Nondeductible gift, possibly subject Tax-free gift received.
to gift tax.
Compensation Step 1: Interest income. Interest expense.
-related Loan Step 2: Compensation expense. Compensation income.
Corporation to Step 1: Interest income. Interest expense.
Shareholder Step 2: Nondeductible dividend deemed paid. Dividend income.
Loan
Chapter 4, Exhibit 10b CCH Federal Taxation Basic Principles 16 of 31
17. Rental Income
Tax Effect on Landlord: ALL rent received is taxable income,
including future years’ rent received in advance
Tax Effect on Tenant with a Business Lease: If rent is paid in advance,
no deduction for rent expense is allowed until the year the payment is
due.
Example
FACTS: Tenant pays Landlord $10,000, covering the first and last year’s rent.
QUESTION: What is the tax effect on Landlord and Tenant?
SOLUTION: $10,000 taxable income to Landlord; $5,000 deduction to Tenant.
Chapter 4, Exhibit 11 CCH Federal Taxation Basic Principles 17 of 31
18. Tenant Improvements
When are tenant improvements taxable to cash-basis landlords?
1. If in lieu of rent (or if repairs paid for by lessee are the
responsibility of the lessor): lessor has rental income to the extent
of the market value of the improvements.
2. If NOT in lieu of rent: Not taxable.
When the property is sold, the improvements will be taxed assuming
they add value that results in a higher sales price.
Chapter 4, Exhibit 12 CCH Federal Taxation Basic Principles 18 of 31
19. Dividend Income
The term “dividend” means any distribution of property
made by a corporation to its shareholders out of its
earnings and profits.
There are two common types of dividends:
Cash Dividends – taxable.
Stock Dividends – generally not taxable. There are 5
exceptions to this rule. If a stock dividend meets one
or more of these exceptions, it is taxable.
Chapter 4, Exhibit 13 CCH Federal Taxation Basic Principles 19 of 31
20. Alimony—Post-1984 Agreements
Payments under instruments executed after December 31,
1984, that meet the following requirements are deductible
as alimony:
Payments must be made in cash
Payments must be made under a divorce or separation
instrument
Parties must live in separate households after a
divorce or separation decree is entered
Alimony must end at the payee’s death
Parties involved may not file a joint return
Chapter 4, Exhibit 14 CCH Federal Taxation Basic Principles 20 of 31
21. Alimony and Child Support
(Post-1984 Divorces)
What is the tax treatment for alimony and child support?
Alimony Child Support
Taxable to Payee? Yes No
Deductible to Payor? Yes (“for” AGI) No
Chapter 4, Exhibit 15 CCH Federal Taxation Basic Principles 21 of 31
22. Alimony Recapture
Alimony is required to be recaptured if:
1) Payments made in the 2nd post-separation year exceed
payments in the 3rd post-separation year by more than
$15,000 and/or
2) Payments made in the 1st post-separation year exceed the
average payments made in the 2nd and 3rd post-separation
years by more than $15,000.
Chapter 4, Exhibit 16a CCH Federal Taxation Basic Principles 22 of 31
23. Alimony Recapture
Step 1: Year 2 Recapture
Year 2 Payment
Less Year 3 Payment
= Excess Payment
Less $15,000
= Amount subject to recapture for Year 2
Chapter 4, Exhibit 16b CCH Federal Taxation Basic Principles 23 of 31
24. Alimony Recapture
Step 2: Year 1 Recapture
Year 1 Payment
Less (Year 2 Payment - Year 2 Recapture + Year 3 Payment) / 2
= Excess Payment
Less $15,000
= Amount subject to recapture for Year 1
Chapter 4, Exhibit 16c CCH Federal Taxation Basic Principles 24 of 31
25. Alimony Recapture
Step 3: Total recapture
The total amount subject to recapture equals Year 2
recapture plus Year 1 recapture.
The amount recaptured is included in the payor’s income and
allowed as a deduction from the payee’s income in Year 3.
Chapter 4, Exhibit 16d CCH Federal Taxation Basic Principles 25 of 31
26. Alimony Recapture
Example:
Bob makes the following alimony payments to Mary:
Year 1 - $70,000
Year 2 - $40,000
Year 3 - $20,000
Chapter 4, Exhibit 16e CCH Federal Taxation Basic Principles 26 of 31
29. Alimony Recapture
Tax Effects of Alimony Payments and Recapture
Bob Mary
Year 1 ($70,000) deduction $70,000 income
Year 2 ($40,000) deduction $40,0000 income
($20,000) deduction $20,000 income
$32,500 recapture ($32,500) recapture
Year 3 $12,500 income ($12,500) deduction
Chapter 4, Exhibit 16h CCH Federal Taxation Basic Principles 29 of 31
30. Discharge of Debt
Forgiveness of debt is generally includable in gross income.
There are 2 exceptions in which taxes on a forgiveness of debt are
deferred (i.e. excluded from gross income):
1. The debt is discharged in a Chapter 11 bankruptcy filing.
The amount of debt discharged reduces certain tax attributes that
otherwise could have provided a tax benefit in the future.
2. The borrower is insolvent outside of bankruptcy
(i.e., Liabilities > FMV of assets immediately prior to discharge)
However, the amount excluded from gross income cannot exceed the
amount by which the taxpayer is
insolvent.
Chapter 4, Exhibit 17 CCH Federal Taxation Basic Principles 30 of 31
31. Discharge of Debt—Bankruptcy
Offsetting reduction of tax attributes. As a price for the deferral
(exclusion from gross income), the Code requires that the amount deferred
be applied to reduce seven tax attributes in the order listed below. However,
the Code offers a special election to first reduce the tax basis of
depreciable property or real property held as inventory.
1. Net operating losses and loss carryovers
2. General business credits under Code Sec. 38
3. Minimum tax credits under Code Sec. 53
4. Net capital loss and loss carryovers
5. Basis of depreciable assets or nondepreciable real assets held
as inventory
6. Passive activity losses
7. Foreign tax credit carryovers under Code Sec. 27
Chapter 4, Exhibit 18 CCH Federal Taxation Basic Principles 31 of 31