notes - Chapter 3 Tax determination; personal and...

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Chapter 3 Tax determination; personal and dependency exemption; an overview of property transactions Tax Formula page 3-2 Gross income is defined as otherwise provided… all income from whatever source derived. = Gross income includes only realized gains. Deductions FOR: Ordinary and necessary expenses incurred in a trade or business ½ of self employment tax paid Alimony paid Certain payments to traditional individual retirement accounts and health savings accounts Moving expenses Penalty for premature withdrawal from savings account Capital loss deductions Deductions attributed to rents and royalties AGI serves as the basis for computing percentage limitations on certain deductions, such as medical expenses, charitable contributions, and certain casualty losses. Itemized deductions, which generally are personal or nonbusiness in nature, are deductions from AGI. The production or collection of income The management of property held for the production of income. The determination, collection, or refund of any tax.
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Alimony is taxable to the recipient and deductible for adjusted gross income by the payor. Payments made under post 1984 agreements and decrees are considered alimony if the following conditions are satisfied. The payments are in cash The agreement does not specify that the cash payments are not alimony The payor and payee are not members of the same household when the payments are made There is no obligation to continue making the payments for any period after the death of the payee. Included in Gross income Personal services Income from property Income from partnerships, trusts and estates Alimony received Interest Income from Annuities Prizes and awards Group term life insurance in excess of $50,000 Unemployment Compensation Social Security may be included Chapter 5 Gross Income: Exclusions Life Insurance Proceeds to a beneficiary are exempt from income taxation.
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When a life insurance policy is transferred for valuable consideration, the receipt of insurance proceeds are includible in the gross income of the transferee to the extent the proceeds received exceed the amount paid for the policy by the transferee plus any subsequent premiums paid. See restriction 5-2 Scholarships are exempt from income taxation unless received from employer Compensatory damages may be excluded from gross income Punitive damages may not be excluded from gross income. Only those compensatory damages received on account of physical personal injury or
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notes - Chapter 3 Tax determination; personal and...

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