McGraw-Hill Education Copyright © 2015 by the McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized.

Slides:



Advertisements
Similar presentations
AATS LLC Accounting and Tax Solutions The Mortgage Forgiveness Debt Relief Act of 2007 and The Housing and Economic Recovery Act of 2008 Alan Yee Tax Partner.
Advertisements

Adjustments to Income. For AGI and From AGI Deductions For AGI – Had any expenses as an educator – Received income from self- employment – Paid a penalty.
McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without.
Gross Income and Exclusions
Chapter 5 Gross Income: Exclusions Copyright ©2007 South-Western/Thomson Learning Individual Income Taxes.
Chapter 4 Lecture 2 Tax Planning and Strategies. Calculating Your Taxes Who has to file an income tax return. Who has to file an income tax return. Choosing.
3 - 1 ©2004 Prentice Hall, Inc. Determining Gross Income Chapter 3.
Chapter 5 Life Insurance Meals / Lodging Foreign Income Exclusion Tax Benefit Rule Scholarships Personal Injury Settlements Long Term Care Insurance Group.
BA 128A-1 Agenda 2/8 Questions from lecture Review Assignment - I3-36,47,57 I4-27,28,56 Additional Problems - I4-10,13,24,34,51 Web Page -
 Special Elections And Post Mortem Planning.  Estate Planning after Death o Decisions made on the estate that Impact heirs Impact taxes Impact executor.
INCOME Interest and Dividends. Interest  Common sources of Taxable Interest:  checking and savings accounts, certificates of deposit (CDs)  savings.
1 © 2007 ME™ - Your Money Education Resource™ Retirement Planning and Employee Benefits for Financial Planners Chapter 13: Employee Benefits: Fringe Benefits.
©The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin Chapter 5 Itemized Deductions “A person should be taxed according to his means.” The Talmud.
Take Charge.  Ability To Pay – a concept of tax fairness that people with different amounts of wealth or different amounts of income should pay taxes.
“A person should be taxed according
©2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. Chapter.
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
Concepts in Federal Taxation Chapter 8: Taxation of individuals
© OnCourse Learning. All Rights Reserved. Federal Taxation of Home Ownership Learning Objectives  Define and list examples of income tax deduction benefits.
Individual Income Tax Computation and Tax Credits
15-1 Individual Tax Consequences of Investment Activity  Timing issues in income recognition  Expenses related to investment activity  Tax basis of.
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
Chapter 13 Retirement Savings and Deferred Compensation © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor.
McGraw-Hill Education Copyright © 2015 by the McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized.
Copyright © 2015 by the McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution.
©The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin Chapter 14 Partnership Taxation “People who complain about taxes can be divided into two classes:
3- 1 CALCPA Income Tax Strategies for Faculty Presented by Susan Barney, CPA CALCPA Income Tax Strategies for Faculty Presented by Susan Barney, CPA.
CHAPTER 2 Gross Income & Exclusions
S Corporation Chapter 46 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company1 An “S” Corporation is a corporation that.
Chapter 2 Gross Income & Exclusions Income Tax Fundamentals 2011 edition Gerald E. Whittenburg Martha Altus-Buller Student’s Copy 2011 Cengage Learning.
Tax Terms You Need To Know
Chapter 5 Gross Income: Exclusions Copyright ©2005 South-Western/Thomson Learning Eugene Willis, William H. Hoffman, Jr., David M. Maloney, and William.
Determination of Income Tax Liability  Gross Income  - “Above the Line Deductions”  = AGI (Adjusted Gross Income)  - Standard or Itemized Deductions.
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
Chapter 5 Gross Income: Exclusions Copyright ©2006 South-Western/Thomson Learning Individual Income Taxes.
14 Long-Term Liabilities: Bonds and Notes Accounting 26e C H A P T E R
Copyright © 2011 Pearson Education, Inc. Managing Your Money.
Chapter 7 Individual From AGI Deductions © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized.
4-1 AC 256 Unit 4 Seminar  Presented By Mike Lubell, DBA, CPA ©2011 Pearson Education, Inc. Publishing as Prentice Hall.
Tax Consequences of Personal Activities 17-1 Chapter 17 McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 07 Individual Income Tax Computation and Tax Credits.
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
McGraw-Hill Education Copyright © 2015 by the McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized.
Chapter 2 Gross Income & Exclusions Income Tax Fundamentals 2010 edition Gerald E. Whittenburg Martha Altus-Buller Student’s Copy.
©2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. Chapter.
Chapter 5 Gross Income and Exclusions © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized.
Chapter 16 Corporate Operations © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for.
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Copyright © 2015, 2011, 2008 Pearson Education, Inc. Chapter 4, Unit E, Slide 1 Managing Money 4.
3-1 ©2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter 3 Gross Income: Inclusions. Learning Objectives Explain the difference between economic, accounting, and tax concepts of income Explain the principles.
Individual Income Tax Overview, Exemptions, and Filing Status
McGraw-Hill/Irwin Copyright (c) 2002 by the McGraw-Hill Companies Inc Principles of Taxation: Advanced Strategies Chapter 11 Chapter 11 Dispositions of.
Chapter 11 Investments © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution.
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
Chapter 2 Gross Income & Exclusions Income Tax Fundamentals 2009 edition Gerald E. Whittenburg Martha Altus-Buller Student’s Copy 2009 Cengage Learning.
4-1 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall.
McGraw-Hill/Irwin Copyright (c) 2003 by the McGraw-Hill Companies Inc Principles of Taxation: Advanced Strategies Chapter 11 Dispositions of Equity Interests.
McGraw-Hill Education Copyright © 2015 by the McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized.
Chapter 3 Gross Income: Inclusions and Exclusions
©2009 South-Western, a part of Cengage Learning
Adjustments to income Spring 2018, lamc.
Income – wages, interest, etc.
Income Unemployment Income Social Security Benefits Other Income
Adjustments to Income.
© OnCourse Learning.
©2010 Pearson Education, Inc. Publishing as Prentice Hall
CHAPTER 2 Gross Income & Exclusions
Presentation transcript:

McGraw-Hill Education Copyright © 2015 by the McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website in whole or part. Chapter 3 Gross Income: Inclusions and Exclusions “I like to pay taxes. With them I buy civilization.” -- Oliver Wendell Holmes, Jr.

LO #1 When and How to Record Income for Tax Purposes Income Recognition for Tax Purposes –Similar to the recognition for accounting purposes Income must be realized and earned –However, three additional conditions must be present when the transaction occurs: Economic benefit of the transaction Conclusion of the transaction Income from the transaction must not be tax- exempt income 3-2

LO #1 When and How to Record Income for Tax Purposes-Concept Check An individual must recognize income on his or her tax return if the transaction meets three conditions. Name the three conditions:________,________, ________ Economic benefit Conclusion Not tax-exempt income 3-3

LO #1 When and How to Record Income for Tax Purposes-Concept Check An individual can exclude certain income from taxation even though a transaction that has economic benefits has occurred. True or False? True 3-4

LO #2 The Cash Method of Accounting as It Applies to Income Taxes Cash Receipts and Disbursements Method –Used by almost all individuals to file their tax returns –Constructive receipt Income is reported in the year the taxpayer receives the right to control the income rather than the year in which it’s earned Receipt of property or services will trigger income recognition 3-5

LO #2 The Cash Method of Accounting as It Applies to Income Taxes-Concept Check Income may be realized in any form, whether in money, property, or services. True or False? True 2. If you provide consulting services to your friend and, in exchange, he fixes your car, you and your friend must report on both tax returns the fair market value of the services provided. True or False? True 3-6

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits Interest –Taxability Interest from banks, savings and loans, or credit unions is reported on a 1099-INT and is taxable Interest earned on Series E and EE U. S. Savings Bonds is taxable but can be reported gradually on an annual basis or fully at maturity Some interest received is tax-exempt if the debt is issued by a state, U.S. possession, or subdivision thereof 3-7

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits –Other types of interest that must be reported Payments received from seller-financed mortgages Receipts from installment sale receivables Imputed interest on loans made at below- market interest rate Interest on bonds sold between interest dates –How to report interest If the amount of interest is more than $1,500, use Schedule B for Forms 1040A and

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits-Concept Check All interest received from state or local bonds is not taxable. True or False? False 2. A Schedule B (Forms 1040A and 1040) is required if an individual receives $1,500 of interest for the tax year. True or False? False 3-9

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits Dividends –Taxability Dividends are distributions to shareholders, thus, income that must be reported on the tax return Dividends are taxed at capital gain rates if they are qualified dividends (from the earnings and profits of the payer corporations, and from domestic or qualified foreign corporations) –Tax rate is 15 percent if the taxpayer’s marginal ordinary income is 25 percent or more, but for 2014, if an individual’s marginal ordinary income tax rate is 39.60%, the tax rate on qualified dividends is 20% –Tax rate is 0 percent if the taxpayer’s marginal ordinary income is less than 25 percent 3-10

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits –Other types of dividends Stock dividends and stock splits are generally not taxable to the shareholders –How to report dividends If the amount of dividends is more than $1,500, use Schedule B for Forms 1040A and

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits-Concept Check Qualified dividends arise from the earnings and profits of the payer corporation. True or False? True 2. A corporation can pay only cash dividends to its shareholders. True or False? False 3-12

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits Refund from the State and Local Governments –Taxability Refunds are taxable if, in the prior tax year, the refund was deducted as an itemized deduction –The taxable amount is: »The lesser of (a) the amount received, (b) the amount deducted on Schedule A, or (c) the amount by which the itemized deductions exceed the standard deduction 3-13

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits Social Security Benefits –Taxability Part of the social security benefits may be taxable Provisional income (also, called modified adjusted gross income) must be calculated and compared to the threshold amounts to determine taxability 3-14

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits –Provisional income defined Adjusted gross income (before social security benefits) plus: –Interest on U.S. Savings Bonds excluded for educational purposes –Most tax-exempt interest –Employer-provided adoption benefits –Excluded foreign income –Deducted interest on educational loans –Deducted tuition and fees (Tax Extenders Act of 2008) –50% of Social Security Benefits 3-15

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits If provisional income exceeds certain thresholds, 50 percent of social security benefits are taxable As provisional income increases, the amount taxable increases to as much as 85 percent 3-16

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits –Chart with Threshold Amounts showing the lower and upper limits of provisional income Married Filing JointlySingle, Head of Household, or Qualifying Widow(er)Lower and Upper Limits $32,000$25,000 $44,000$34,

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits –Calculations Example: –Karen files a return as a qualifying widow. She received $7,000 of social security benefits, $19,000 of interest income, and $5,000 of nontaxable municipal bond interest. Her provisional income is $27,500. Karen will report taxable social security benefits equal to the lesser of 50 percent of Social Security benefits ($3,500) or 50 percent of the excess of provisional income over $25,000 ($1,250). Thus, her taxable benefits are $1,

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits-Concept Check Linda and Mason file a joint return. Their AGI before social security was $22,000, social security benefits received were $9,000, and tax- exempt interest was $1,250. What is the amount of their provisional income? $27,750 ($22,000+$4,500+$1,250) 3-19

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits Other types of taxable income: –Jury duty –Prizes and awards –Forgiveness of debt –Insurance proceeds in excess of the adjusted basis of the property 3-20

LO #3 The Taxability of Components of Gross Income: Interest, Dividends, Tax Refunds, and Social Security Benefits-Concept Check Name a type of income item that is listed on line 21 of the Form 1040.____ Jury duty, gambling winnings 3-21

LO #4 The Rules Concerning Items Excluded from Gross Income Income excluded from gross income –Fringe benefits qualify if they meet the nondiscrimination rules Examples: –No-additional-cost services provided to an employee »Unsold hotel room or airline seats 3-22

LO #4 The Rules Concerning Items Excluded from Gross Income –Discounts provided to employees for products or services normally sold by the business »In case of products, the discount cannot exceed the gross profit percentage »In case of services, the maximum discount is 20 percent of the normal selling price –Qualified transportation benefits –Moving expense reimbursements –De minimis benefits »Holiday turkeys, company picnics 3-23

LO #4 The Rules Concerning Items Excluded from Gross Income –Nontaxable fringe benefits with certain limitations Examples: –Life insurance »Premiums for coverage up to $50,000 –Educational assistance »Up to $5,250 may be reimbursed to the employee –Dependent care assistance »Up to $5,000 of exclusion, but cannot exceed earned income of the employee 3-24

LO #4 The Rules Concerning Items Excluded from Gross Income –Other nontaxable income: Some of these items have certain requirements or limitations that must be met: –Scholarships and fellowships –Qualified tuition program (QTP) withdrawals –Life insurance proceeds –Gifts and inheritances –Compensation for sickness or injury –Child support –Welfare –Employer-provided adoption assistance 3-25

LO #4 The Rules Concerning Items Excluded from Gross Income-Concept Check Holiday turkeys given to employees are included in gross income. True or False? False 2. In general, scholarships are not taxable if the use of the money is to pay tuition, fees, books, supplies and equipment. True or False? True 3-26

LO #5 The Rules Associated with Tax Accounting for Savings Bond Interest used for Education Expenses, Below-Market Interest Loans, Gift Loans, and Original Issue Discount Debt Savings Bond Interest –Taxability Not taxable if used to pay qualified higher education expenses for the taxpayer, spouse or dependent children Full exclusion allowed if the education expenses paid exceed the redemption amount Limitation applies if modified AGI exceeds $113,950 on a joint return or $76,000 on other returns 3-27

LO #5 The Rules Associated with Tax Accounting for Savings Bond Interest used for Education Expenses, Below-Market Interest Loans, Gift Loans, and Original Issue Discount Debt Below-Market Interest Loans –If the debt instrument was created with interest rates that materially vary from market rates at the time of issuance, then interest is required to be imputed. Examples of when imputed interest does not apply: –Sales of property for $3,000 or less –Sales in which all payments are due in six months or less 3-28

LO #5 The Rules Associated with Tax Accounting for Savings Bond Interest used for Education Expenses, Below-Market Interest Loans, Gift Loans, and Original Issue Discount Debt Gift Loans –Imputed interest rules apply to gift loans over $14,000 where foregone interest is in the form of a gift 3-29

LO #5 The Rules Associated with Tax Accounting for Savings Bond Interest used for Education Expenses, Below-Market Interest Loans, Gift Loans, and Original Issue Discount Debt Original Issue Discount (OID) –Equal to the difference between the acquisition price and the maturity value –The holder must report part of the OID as income every year 3-30

LO #5 The Rules Associated with Tax Accounting for Savings Bond Interest used for Education Expenses, Below-Market Interest Loans, Gift Loans, and Original Issue Discount Debt –OID is not applicable to: Tax-exempt debt U.S. Savings Bonds Debt with a maturity of 1 year or less on the date of issue Any obligation issued by a natural person before March 2, 1984 Non-business loans of $10,000 or less between natural persons 3-31

LO #5 The Rules Associated with Tax Accounting for Savings Bond Interest used for Education Expenses, Below-Market Interest Loans, Gift Loans, and Original Issue Discount Debt-Concept Check An individual is required to impute interest on a deferred payment contract where no interest, or a low rate of interest, is stated. True or False? True 3-32

LO #5 The Rules Associated with Tax Accounting for Savings Bond Interest used for Education Expenses, Below-Market Interest Loans, Gift Loans, and Original Issue Discount Debt-Concept Check If someone purchases a debt instrument (such as a bond) from an issuer for an amount less than par value, the transaction creates original issue discount (OID). True or False? True 3-33