Federal Income Tax Outline: Gross Income, Deductions, and

School: Ohio Northern University - Course: LAW 1280 - Subject: Accounting

Federal Income Tax Outline TABLE OF CONTENTS PageHeading 1§ 61 Gross Income List 1Definitions 2Claim of Right 2Contested Debt Doctrine 2Property Disposition 3Gifts 4Employer/Employee Benefits 4Sale of Principal Residence 5COD in § 108 5§ 117(a) Qualified Scholarship 6Life Insurance Exclusion 6Proceeds from Life Insurance § 101(a) 6Health Insurance 7Like Kind Exchange § 1031 8Involuntary Conversion § 1033 9Assignment of Income 9Accounting Methods 9OID 10Deferred Sales of Property 10Deductions 10Expenses for Production of Income § 212 11Deduction Flow Chart 11Exceptions to Usual Depreciation 11Straightline vs. (ACRS) Double Declining Balance Method 12State and Property tax § 164 12Medical Expenses 12Charities 12199A 13Timing of Deductions 14Capital Gains and Losses 15Tax Rates 15Preferential Rates 15Marriage Penalty/Bonus 15Credits 16Examples of Credits 18Midterm Question and Answer 1 19Midterm Question and Answer 2 21Final Question 1 22Final Answer 1 27Final Question and Answer 2 ●Congress has the power to lay and collect taxes, duties, imposts and excises to pay the 0 debts and provide for the common defense and general welfare of the US but all duties, imposts and excises shall be uniform throughout the US. (US Cn Art. 1, Sec. 8) ●Basic Outline for Tax Calc: ○Gross Income - Deductions = Taxable income (net income) ○Net income x tax rate = precredit US tax- credits = final us tax ●Deduction is a percentage basis deduction basically ●Credit is a dollar for dollar basis off of the tax you owe (you want credits usually) ●Section 61 - General: except as otherwise provided in this subtitle,gross income means all income from whatever source derived, including (but not limited to) the following items: 1.Compensation for services, including fees, commissions,fringe benefits, and similar items; 2.Gross income derived from business; 3.Gains derived from dealings in property; 4.Interest; 5.Rents; 6.Royalties; 7.Dividends; 8.Annuities; 9.Income from life insurance and endowment contracts; 10.Pensions; 11. Income from discharge of indebtedness; 12.Distributive share of partnership gross income; 13.Income in respect of a decedent; and 14.Income from an interest in an estate or trust. ●Imputed Income- you do something for yourself - this is not gross income. ●Psychic Income- you enjoy a day at the beach - not gross income ●Income derived from illegal activitiesis still income ●Fringe Benefits ○Cars flights discounts etc. in connection with the performance of services ○Use the fair market value of the item received for what is in gross income. ○Look at facts and circumstances, is it an arm's length, without regard for subjective preferences ○Fringe benefit to a 3rd party is still income to you. ●Compensation vs Work Duties ○Factors: primary purpose of trip, control, optional, ER-EE relationship ●Found Property ○Basis = FMV when found ●Bargain Purchase ○General Rule for Purchase of Cash unless it is hidden compensation or hidden gift ○Cash paid is then the basis! ●Receipts subject to claims/disputed amounts/amounts that might have to be returned ○If a t receives income under a claim of right and without restriction as to its 1

disposition = income in the year received even though possession of disputed funds may have to be returned later. ○If funds are returned later then you MAY get deduction in the year of returned ○TEST ■If a T receives income ■Under a claim of right AND ■Without restriction as to its disposition