Transcript Additional Gross Income Items

Which of the following are included in
gross income and which are excluded?
 Prizes
and awards
 Scholarships
 Alimony received
 Child support received
 Property settlements pursuant to divorce
 Employee fringe benefits
 Imputed Income
 Below
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market-rate loans
 Payment of expenses by others
 Bargain purchases
Which of the following are included in
gross income and which are excluded?
 Gifts
and inheritances
 Life insurance proceeds
 Welfare payments
 Social Security benefits
 Medical insurance payments
 Workmen’s compensation
 Compensation for injuries
 Unemployment benefits
 Punitive damages
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 Payment for lost wages
Deductions ‘for’ AGI
 Trade
or business deductions
 Moving expenses (with limitations)
 Net Capital Losses up to $3,000
 Alimony paid (but not child support)
 50% of self-employment tax paid and 40%
of a self-employed person’s medical insurance
premiums
 Net operating loss deduction
 IRA contributions
 Up to $2,500 of post-secondary tuition, phased out for
16-3 higher income taxpayers
Itemized Deductions
 Medical
expenses
 Payments
to health care practitioners, medical
facilities, insurance premiums, medical aids,
prescription drugs
 Only unreimbursed costs
 Deductible in excess of 7.5% of AGI
 Charitable
contributions
 Cash
or FMV of property contributed to a qualified
tax-exempt organization
 Subject to many limitations
 deduction
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of AGI
for gifts to public charities may not exceed 50%
Itemized Deductions continued
 Interest
Deductions
 Trade
or business interest deducted for AGI
 Investment interest expense
 Deduction
 Qualified
limited to amount of net investment income
residence interest
 Deduction
limited to interest on up to $1 million of
acquisition debt plus $100,000 of home equity debt
 Available for a primary and one secondary residence
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Itemized Deductions continued
 Taxes
 Income
 State,
 Real
taxes
local, and foreign, NOT federal
property taxes
 Personal property taxes based on value
 Other state, local and foreign business-related taxes
deducted for AGI
 What common tax we all pay is not deductible?
16-6
Itemized Deductions continued
 Personal
Casualty and Theft losses
 A casualty
loss is a loss of property caused by some
sudden, unusual or unexpected external force, such
as a natural disaster
 Theft means an illegal taking of property, not just
loss due to carelessness
 Deduction subject to a $100 per event floor and a
reduction of 10% of AGI
 Casualty and theft losses of business property
deductible for AGI
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Itemized Deductions continued
 Miscellaneous
 Deductible
itemized deductions
only in excess of 2% of AGI
 Include:
 Unreimbursed
business expenses
 Investment expenses
 Tax return preparation fees
 hobby expenses
 Gambling
losses
 Deductible
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only against gambling winnings
Other Issues
 Use
of property for both personal and businessrelated purposes may introduce considerable
complexity into the calculation of individual
taxable income
 Two
common examples:
 office
in the home
 vacation home
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Vacation Home
 Treatment
of income and expenses of a vacation
home depends on extent of rental and personal
use
 If
rented 14 or fewer days of year and used
personally the remainder of the year, the property is
treated as a personal residence. Rental income is not
reported and rental expenses are not deductible
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Vacation Home continued
 If
rented more than 14 days:
 And
used personally for more than 14 days or more
than 10% of the number of rental days:
 Income
reported as taxable
 Allocable portion of expenses deductible, limited to rental
income
 And
used personally for less than 14 days or 10% or
less than the number of rental days:
Income reported as taxable
 Allocable portion of expenses deductible

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Sale of Personal Residence
 Up
to $250,000 ($500,000 MFJ) of gain
excluded from taxation
 Dwelling
must have been owned and used as
taxpayer’s principal residence for 2 of last 5 years
 Exclusion applies to only one sale every 2 years
 Reduced
exclusion available if sold due to change in
employment, health reasons, or unforeseen circumstances
• Reduced exclusion = maximum X lesser of ownership period
exclusion
or time since prior sale
two years
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Tax Subsidies for Higher
Education
 Tax
credits
 HOPE
scholarship credit
 Lifetime learning credit
 Interest
rules
 Exclude
from income interest earned on Series EE savings
bonds used for tuition and fees
 Itemized deduction allowed for interest paid on qualified
education loans
 Education
savings account
 Maximum
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nondeductible contribution of $2,000 per year
 Withdrawals nontaxable if used for beneficiary’s education
expenses