TAX: BASIC FED. PERSONAL INCOME…. 2
I. Introduction2
A. Basic Principles of our tax system. 2
B. Methods for classifying taxpayers §1 2
II. Identification of Income Subject to Taxation Gross Income: The Scope of § 61 3
A. Gross Income: Equivocal Receipt of Financial Benefit. 3
B. Income without Receipt of Cash or Property7
C. §83 – Property transferred in Connection with performance of services8
III. The Exclusion of Gifts and Inheritances 12
A. Gifts 12
B. Bequests, Devises, and Inheritances 14
C. Other Exclusions 15
IV. Gain From Dealings in Property16
A. Factors in the Determination of Gain16
B. Determination of Basis17
C. The Amount Realized 24
D. Depreciation and Amortization 29
E. Character of capital gains and losses34
F. Timing and Characterization. 39
G. Non-Recognition/Exclusion Transaction 43
V. Discharge of Indebtedness 46
A. Introduction in general46
B. Exceptions46
VI. Damages and Related Receipts50
A. Damages in General50
B. Damages and Other Recoveries for Personal Injuries51
VII. Separation and Divorce. 53
A. Alimony and Separate Maintenance Payments 53
B. Property Settlements 55
C. Child Support 56
VIII. Interest Expenses and Interest Free Loans 56
A. Interest 56
B. Interest Free Loans59
IX. Deductions 64
A. Introduction64
B. Business Deductions: §16264
C. Deductions for Profit-Making, Nonbusiness Activities 73
D. Deductions Not limited to Business or Profit Seeking Activities 77
E. Restrictions on Deductions 77
F. Applicability of Deduction 79
G. Exemptions81
H. Tax Credits82
I. AMT 83
TAX: BASIC FED. PERSONAL INCOME
Professor Davidian, davidiaj@stjohns.edu
I. Introduction
Gross Income
(-) §62 Deductions
Adjusted gross income [used as a measure for other tax liabilities]
(-) personal exemptions §151 [allowed to be subtracted for yourself or dependant]
subject to inflation rate pg 1751, and “phase out” for higher adjusted gross.
(-) itemized deductions or standard deduction [charitable donations, state taxes, etc.]
If itemized deductions are less then standard deduction, only standard applies.
Taxable Income – What portion is ordinary income, and capital gains.
(x) Applicable tax rates §1
Tax Liability
(-) Tax credits
Tax Due or Refund
—————————————————————————-
Taxable Income
(+) Adjustments – Forces taxpayer to return certain deductions
Alternative Minimum Taxable Income
(-) Exemption [fairly large, i.e. married $45,000, which phases out]
Taxable Excess
(x) Tax Rates [26% up to $175,000 and 28% above, but capital gains rate still apply]
Alternative Minimum Tax
If this exceeds what would be the regular tax liability, then they are subject to
axed at one that exceeds the maximum tax rate in §1(h).
· Most of your capital gains for a year cannot be in excess of 20%.
II. Identification of Income Subject to Taxation
Gross Income: The Scope of Section 61
A. Gross Income: Equivocal Receipt of Financial Benefit
· Gross Income – All income from whatever source derived
§ 61(a) of Title 26 U.S.C –
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including but not limited to…
Þ An item is gross income unless the code provides otherwise, a specific exclusion provision, for example a gift or inheritance is excluded.
Judicial description of gross income.
(1) An undeniable accession to the taxpayer’s wealth
(2) Clearly realized
(3) and over which the taxpayers have complete dominion
(4) no consensual obligation on the taxpayers part to repay the financial benefit.
(5) Sales of property or investments, which only produce a return of the investment or basis, are not gross income. Basis is not included in gross income.
(6) The financial benefit must not be excluded by government action.
