1. TAX-AIDE Tax Law Basics

2. TAX-AIDE Income Overview ● Taxable income versus nontaxable income (including excluded income) ● Earned income versus unearned income NTTC Training 2013 2

3. TAX-AIDE Taxable Versus Nontaxable Income ● Basic tenet of the income tax code: Income or gain, from whatever source derived, is taxable... unless the code says it is not taxable  Table B on D-1 in Pub 4012 has examples of income that is not taxable NTTC Training 2013 3 Pub 4012, Page D-1

4. TAX-AIDE Taxable Versus Nontaxable Income Quiz ● Is this taxable? T-Bill interest income?  Yes (state may differ) Church bingo winnings?  Yes, a prize Inherited house?  No Interest earned inside a qualified IRA?  No (wait until distributed) NTTC Training 2013 4 Pub 4012, Page D-1

5. TAX-AIDE Taxable Versus Nontaxable Income ● Even though not taxable, must input certain nontaxable income Exempt interest income Exempt interest income dividends  May affect other calculations e.g. taxable portion of social security benefits NTTC Training 2013 5

6. TAX-AIDE Earned Versus Unearned Income ● Definition differs – must check rules for particular benefit ● Example: For earned income credit  Earned income does not include penal income For dependent care credit  Earned income does include penal income NTTC Training 2013 6 Pub 4012, Page I-1

7. TAX-AIDE Earned Versus Unearned Income ● Earned income usually includes (for in-scope returns): W-2 wages Schedule C – business income  (there are more types of earned income) NTTC Training 2013 7

8. TAX-AIDE Earned Versus Unearned Income ● Investment income is unearned income for in-scope returns – examples: Interest Dividends Capital gains or losses Royalties NTTC Training 2013 8

9. TAX-AIDE Earned Versus Unearned Income ● Other types of unearned income for in- scope returns Land rents Unemployment Retirement income Social security benefits (there are more types of unearned income) NTTC Training 2013 9

10. TAX-AIDE Deductions and Credits ● A grace of the law ● If there is not a provision to allow the deduction, it is not deductible ● To claim any credit, must satisfy all requirements NTTC Training 2013 10

11. TAX-AIDE Deductions ● Reduce income otherwise subject to tax ● Types: Adjustments to gross income Itemized or standard deduction Personal exemption deduction NTTC Training 2013 11

12. TAX-AIDE Credits ● Reduce tax liability dollar for dollar Nonrefundable  Limited to amount of tax  No cash back Refundable  Cash back if exceed tax liability NTTC Training 2013 12

13. TAX-AIDE Tax Law Basics Comments? Questions? NTTC Training 2013 13