§61 (Gross Income) – §62 (deductions) = Adjusted Gross Income (AGI)
– Schedule C: Business expenses
AGI – Itemized/standard deductions – personal exemption = Taxable Income
– Schedule A: Itemized Deductions
Part I: Definition of GI, AGI, Taxable Income
– §61 GI. §62 Deductions to arrive at AGI. §63 Taxable income. §64 Ordinary Income. §67 Misc. Item. Ded. (MID) with 2% floor (and those itemized deductions not subject to 2% cap). §68 limit on itemized ded.
Part II: Items specifically included in GI
– §71 Alimony. §72 Annuities. §74 Prizes and awards. §83 Property for services. §86 Social Security.
Part III: Items specifically excluded from GI
– §101 Death benefits. §102 Gifts and inheritances. §103 Interest on govt bonds. §104 compensation for injury. §106 Employer-provided health care. §108 Discharge of debt (with exceptions). §109 Improvements by lessee. §117 Qualified scholarships. §119 Meals or lodging for convenience of employer. §121 Sale of principal residence (with limits). §132 Fringe benefits.
Part V: Deductions for personal exemptions
– §151 Exemptions. §152 Dependent defined.
Part VI: Itemized Deductions for Individuals and Corporations
– §162 Business expenses. §163 Interest. §164 Taxes. §165 Losses. §166 Bad debts. §167 Depreciation. §168 Accelerated Cost Recovery (ACR). §170 Charitable contributions. §172 Net operating loss. §174 Research and experiment. §183 Hobbies. §195 Start-up costs. §197 Amortization of good will.
Part VII: Additional Itemized Deductions for Individuals
– §212 Costs to production of income. §213 Medical, dental, etc. §217 Moving expenses. §219 Retirement savings. §221 Education loan interest. §222 Qualified tuition. §223 Health savings
Part IX: Items not deductible
– §262 Personal, living, family expenses. §263 Capital expenditures. §263A Capitalization. §265 Expenses and interest of tax-exempt income. §274 Entertainment. §280A Business use of home.
Introduction (Ch. 1) – ASSG #1
§61 Gross Income – “All income from whatever source derived” including
– Compensation for services,
– income from business,
– gains from property,
– discharge of debt, etc..
o §108 Exclusions
– Money, property or services.
o FMV of property, services (unless stipulated price, which is considered FMV unless evidence to the contrary).
o §83 – If compensated with property, when you give less than its FMV, (FMV – amount paid) is INCLUDED in gross income.
§ Basis in the employee/contractor will be FMV.
§ §83 property that is subject to risk of forfeiture (here’s stock that’s yours but you have to give it back if you stop working in 5 years), employee doesn’t have to include it until restriction is gone. Giver doesn’t deduct until restriction is gone.
o Punitive damages (Glenshaw Glass),
o another person’s payment of taxes (Old Colony Trust),
o illegal gains.
o Glenshaw Glass Rule: Any accession to wealth is GI unless specific exclusion.
§62 – AGI: GI minus Above-the-line deductions
– (a) Above-the-line deductions
o (1) Non-miscellaneous deductions for T/B if not employee
o (2) Employee’s T/B deductions if reimbursed by employer
o (3) Deductions for
perty received at sale.
– Cost of property
§1011 Adjusted Basis
– Cost + §1016 adjustments
o §1016: Subtract depreciation; add capital expenditures.
– Can be seen as the “unrecovered cost” of an asset.
§1014 Basis from decedent
– FMV at death.
o If you transferred appreciated property (FMV above AB) to the decedent w/in a year before he died, and get it back, your basis was decedent’ AB, not FMV.
§§1015 Basis from gift
– If determining gift-receivers gain from sale of gift
o His AB was donor’s AB.
– If determining gift-receivers loss from sale of gift
o His AB was donor’s AB unless donor’s AB was above FMV.
§ Then, gift-receiver’s AB is FMV at transfer.
§119 – Meals and Lodging provided to Employees for Convenience of Employer EXCLUDED
(See Benaglia, Old Colony (p. 52, n.5), (p. 178, n.5))
Benaglia: Hawaiian hotel employee allowed to exclude food and lodging.
– Exclude from GI
– To employee, spouse, or dependent
– Convenience of employer
o Fact-intensive analysis.
– Meals without charge
o Considered convenient if provided without charge and for non-compensatory reasons.
§ Mere declaration that they are non-compensatory is not enough.
§ Usually not for convenience of employer if before or after work hours.
· Never on non-working days.