Federal Income Taxation
1. Introduction
2. Gross Income
3. Obligation to Repay
4. Gains from Dealings in Property
5. Gifts, Bequests, Inheritance
6. Discharge of Indebtedness
7. Fringe Benefits
8. Business and Profit Seeking Expenses
9. Capital Expenditures
10.Depreciation
11.Travel Expenses
12.The Interest Deduction
13.Cash-Method Accounting
14.Accrual-Method Accounting
15.Annual Accounting
16.Capital Gains and Losses
17.Quasi-Capital Assets
18.Recapture of Depreciation
19.Assignment of Income
20.Tax Consequences of Divorce
21.Like Kind Exchanges
Introduction
Five Questions
What items must be included?
What items may be deducted?
When is an item included or deducted?
Whose income or deduction is it?
What is the character of items of income or deductions?
Formula for Taxation
Taxable Income = [(Gross Income – § 62 deductions) – § 63 deductions]
§ 62 and § 63 say when a deduction is applied in the tax formula, but they don’t list when something is deductible or not.
§ 151ff – what you can deduct
§ 261ff – what you cannot deduct.
What is included in Gross Income?
General rule: if something makes you better off, it is income, unless you can find a statutory or judicial exclusion.
DEDUCTIONS
The income tax is a tax on net income. In general a person may deduct from his gross income the costs incurred in producing his gross income.
The most important deductions are for costs incurred to produce gross income. IRC §§ 62(a)(1), 162, 212.
The deduction provisions of the Code begin with § 161.
Deductions are a matter of statutory grace. Every time you have a deduction which you believe is deductible, you must find a specific Code section or case authorizing the deduction.
Above the Line Income: subtracted from gross income pursuant to § 62.
Below the Line Deductions: subtracted from adjusted gross income pursuant to § 63.
Taxable Income
Itemized Deductions: the taxpaye
licy reasons, Congress has specifically excluded certain items from gross income.
i. § 102: excludes gifs and bequests.
ii. § 102(c): the exclusion for gifts shall not include any amount transferred from an employer to an employee.
Basically, income generally includes items which add to the taxpayer’s net worth.
Income Realized in Any Form
Reg. § 1.61-1(a): Gross income may be realized in any form, whether money, property, or services.
Reg. § 1.61-2(d)(1): If services are paid for in property, the fair market value of the property is the measure of compensation. If paid for in the form services, the value of the services received is the amount of compensation.
Comm’r v. Glenshaw Glass Co., Supreme Court (1955) (GROSS INCOME)
TEST:
