Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Key notes will appear in this box automatically as the audio review proceeds. When the professor (s) announce the session has concluded, you can continue with the quiz at the end of the lesson by following the links. 0005

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Four Basic Income Tax Concepts –Gross Income –Doctrine of Constructive Receipt –Economic-benefit Theory –Assignment of Income 0036

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Gross Income –For income tax purposes, all income from whatever source derived, minus allowable exclusions Items Included as Gross Income –Compensation for services (fees, commissions, fringe benefits, etc.) –Gross income derived from business –Gains derived from dealings in property –Interest; rents; royalties; dividends; annuities; pensions –Alimony & separate maintenance payments –Income from life insurance & endowment contracts –Income from discharge of indebtedness –Distributive share of partnership gross income –Income in respect of a decedent –Income from an interest in an estate or trust 0120

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Realization of Income –There must be a taxable event Recognition of Income –Usually follows a taxable event, but can be deferred Assignment of income –Principle that requires the taxpayer whose personal efforts generate income or who is the owner of property that generates income to include the income on his or her own tax return – key word: whom 0410

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Economic-benefit theory –This doctrine holds that any economic or financial benefit conferred on an employee is taxable as compensation, regardless of the form or mode by which it is conferred Doctrine of Constructive Receipt –Doctrine by which income becomes taxable to a cash-basis taxpayer in the year in which it is constructively received, although it may not actually be in the taxpayer’s possession 0510

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Difference Between Constructive Receipt and Economic Benefit –Constructive-receipt doctrine – forces inclusion of income when the employee has an unqualified choice – to take or not to take income set apart or credited to his or her account – key word: when –Economic-benefit theory or doctrine – forces the inclusion of income, even if the employee cannot take the income 0640

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Tax Formula for Individuals – Income (broadly conceived) -Exclusions = Gross Income -Deductions for AGI = AGI - The larger of itemized deductions or the standard deduction - Personal & dependency exemptions = Taxable Income Tax on taxable income less prepayments = Taxes payable or refund due 0650

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Above-the-line deductions –Deductions taken from gross income in determining adjusted gross income Adjusted Gross Income (AGI) –Gross income minus all allowable “above-the-line deductions Below-the-line deductions –Deductions taken from adjusted gross income in determining taxable income Taxable Income –For individuals, adjusted gross income minus itemized deductions and personal exemptions 0715

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Kidde Tax –A tax law that prevents families from shifting large amounts of unearned income to children and making the shift effective for income tax purposes; –Applies to the net unearned income of children under the age of

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Examples of Deductions Allowable in Determining AGI –All deductions attributable to a trade or business of self-employeds –Losses from sale or exchange of property –Deductible contributions to pension/profit sharing plans of self- employeds –Deductible contributions to IRAs –Penalties for premature withdrawal –Deductible alimony payments –Deductible moving expenses –Deductible higher education expenses Standard Deduction –A deduction from AGI for those who do not itemize 1002

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Personal Exemptions –Most taxpayers are entitled to one personal exemption for themselves Husband and wife are considered two separate taxpayers and entitled to two exemptions. Spouse who files a joint tax return is not considered a dependent. Dependency Exemptions –Five Tests Support test Relationship test Gross Income test Joint Return test Citizen / Residency test Phaseout rules –2% of each $2,500 increment by which AGI is in excess of the threshold amount 1010

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Filing status (non-corporate) –Determined on last day of the year –Married taxpayers filing jointly –Unmarried heads of households –Unmarried or “single” taxpayers –Married taxpayers filing separately –Estates and Trusts 1025

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Unmarried Head of Household Requirements – – Four Basic Components Married Status Requirements Household Requirement “Qualifying Person” Requirement Rule for Parents 1050

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Qualifying Child –Must be child of the taxpayer or a descendent of that child or a brother, stepbrother, sister or stepsister of the taxpayer –Must have same principal abode for half the year –Must be under age 19 at the end of the year or a student and under age 24 at the end of the year, or must be totally or permanently disabled at any time during the year –Must not have provided more than half of his or her support during the year 1215

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Qualifying Relative –Must not be a “qualifying child” of any taxpayer for the year. –Must be a specified relationship to the taxpayer such as child, sibling, parent, etc. –Individual’s gross income for the year must be less than the amount of the personal exemption for the year –The taxpayer must provide more than half of the individual’s support for the year 1254

Assignment 2 An Introduction to four Basic Income Tax Concepts Determination of Income Tax Liability Four Basic Income Tax Concepts Gross Income Items Included as Gross Income Examples of Deductions Allowable in Determining AGI Income; Assignment of, Realization and Recognition of Economic Benefit Theory Doctrine of Constructive Receipt Difference Between Constructive Receipt and Economic Benefit Above-the-line Deductions Adjusted Gross Income Below-the-line Deductions Tax Formula for Individuals Rules for Personal and Dependency Exemptions Unmarried Head of Household Requirements Kidde Tax Tax Return Filing Dates Typical Tax Return Filing Dates –Individual taxpayer – April 15 th –Corporations – March 15 th

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