1. Gross Income Gross income includes all items of income subject to federal taxes. Examples of gross income include Wages and salaries Bonuses, commissions, and tips Interest, dividends Capital gain Alimony received Business income and rental income Pensions, and annuities Prizes, lottery, and gambling winnings
Tax-Exempt Income Child support received Insurance reimbursements Gifts (limits apply) Scholarships (som e limits) Tax refunds Return of original investment capital Totally or partially excluded from gross income for income tax purposes
Capital gain (loss) – when an asset is sold for more (less) than its original cost Short-term capital gain - item held for 1 year or less; taxed as ordinary income Long-term capital gain - item held more than 1 year; currently taxed at 0% to 20% Capital Gains
2. Adjusted Gross Income (AGI) Income remaining after subtracting allowable adjustments to gross income AGI can directly impact the deductions and credits you’re eligible for—which can wind up reducing the amount of taxable income you report on the return. AGI can also impact your state taxable income, because many states use your federal AGI as the starting point for calculating your state taxable income. Certain tax credit requires that your MAGI be below certain thresholds in order to claim the credit.
Adjustments to Gross Income These can be subtracted from gross income Business expenses (limited) Student loan interest IRA contributions (limited) Self-employment tax – (limited to 50%) Self-employed health insurance deduction Health savings account deductible Alimony paid Etc.
3. Deductions: Standard or Itemized Standard deduction – blanket amount allotted for various deductible expenses filing status age vision In 2018, $12,000 for single taxpayers and married taxpayers filing separately, $24,000 for married taxpayers filing jointly, and surviving spouse, $18,000 for taxpayers filing as head of household.
Deductions: Standard or Itemized Itemized deductions personal expenditures deducted from AGI itemize if expenses are greater than standard deduction Medical, dental expenses (exceeding 7.5% AGI for 2017 and 2018) State, local income taxes; property taxes (limit to $10,000 total) Mortgage interest (on loans up to$375,000/$750,000 for single/married filing jointly issued after Dec. 14, 2017) Charitable contributions (up to 60% of AGI) Casualty, theft losses Job related expenses is allowed in Investment expense (limited) Choose standard or itemized deduction, which over is higher!
4. Exemptions Self and dependents supported by taxpayer’s income –
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- Revenue, Taxation in the United States, Federal Income Tax Principles