Tax Of The Individual Income

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Section 162

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Expenses that are ordinary and necessary in the context of a business may be deducted

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1012

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"basis" of the property is the cost of the property

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1001(a)

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formula for gain is amount realized(AR) minus adjusted basis (AB). Formula for loss is adjusted basis minus amount realized

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1011

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the formula for "adjusted basis" is: "basis (1012, 1014, 1015) plus adjustments under 1016

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1016

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adjustments to basis shall be made for expenditures or losses (etc) made or had that are chargeable to capital account

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1015

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basis of property received by gift is a transferred basis

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1001(b)

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amount realized is money received plus the fmv of property received (ie. total value received)

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61(a)(2)

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gross income includes gains derived from business

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Reg. 1.61-3(a)

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gross income derived from business is actually total sales less the cost of goods sold

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212

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expenses incurred to earn income (not from a business) may be deducted

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1014

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basis of property received from decedent is a stepped up/down basis

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61(a)(3)

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gross income includes gains derived from dealings in property

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102

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gross income does not include gifts and inheritance

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121

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gross income shall not include gain from the sale of principal residence, if certain conditions are met, up to $250K/$500k MFJ

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analysis for property

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61(a)(3)

1001(a)

1001(b)

1011

1012

1016

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analysis for gift from living person

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61(a)(3)

102

1001(a)

1001(b)

1011

1015

1016

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analysis for gift from decedent

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61(a)(3)

102

1001(a)

1001(b)

1011

1014

1016

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analysis of a house you bought

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61(a)(3)

1001(a)

1001(b)

1011

1012

1016

121

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analysis of a house you inherited

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61(a)(3)

102

1001(a)

1001(b)

1011

1014

1016

121

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analysis for deduction for business

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61(a)(2)

Reg. 1.61-3(a)

162

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analysis for deduction for personal expenses to earn income (not a business)

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61(a)

212

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section 61

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gross income includes all income whatever source derived

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section 62

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adjusted gross income=

gross income-deductions

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above-the-line deductions

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deductions a taxpayer may consider in determining adjusted gross income

section 62

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below-the-line deductions

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Deductions a taxpayer may take into account onlyafter the adjusted gross income determined (itemized deductions or standard deduction)

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itemized deduction

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§63(e); §161-249

Use itemized deductions if deduction amountswould be above the standard deduction allowed amount

2% floor on itemized deductions

§67

Limitations §68

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standard deduction

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§63(c)

Basic standard deduction + additional standarddeduction

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Items not deductible

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section 261-291

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personal exemption

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section 151

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taxable income

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§63

Adjusted gross income (grossincome-above-the-line deductions)-below-the-line deductions (itemized orstandard)-personal exemption

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Tax rate

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§21-53

Saves actual taxes

Makes things free

Acts as prepayment of tax

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Rate system

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Progressive

First so much is at certain rate

Next section is at a different rate

Ex. Income tax

Regressive

Sales tax

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Tax Rates

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§1(c), (i)

§1(h)

Applies when the taxpayer has a net capital gain

Purpose is to provide preferential tax rates fornet capital gains

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Imputed Income

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Self-help activities (performing services foroneself, one’s family or others

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Tax bracket

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section 1(a)-(e)

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Bargain Purchase

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Reg. §1.61-2(d)(2)(i)

If property is transferred as compensation forservices in an amount less than its fair market value, the difference betweenthe fair market value and the amount paid is gross income`

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Barter

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Negotiation process

Quid pro quo No different than cash, other than form

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Exclusion

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Things that do not get imputed into your grossincome, adjusted gross income, or taxable income

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Fair Market Value (FMV)

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Reg. §20.2031-1(b)

Defined as the price a willing buyer would pay awilling seller, with neither under a compulsion to buy or sell, and both havingreasonable knowledge of relevant facts

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Realization

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Converting any property into money

Ex. Selling stocks

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Treasure Trove

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finding money is considered gross income

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Loans

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unconditional obligation to repay

accession to wealth, clearly realized, diminutive control

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claim of right

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contingent repayment obligation

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Illegal Income

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still income regardless of being illegal

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Deposits

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who has control over the funds

"complete dominion and control"

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amount realized

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section 1001(b)

sum of the money received plus the fmv of the property

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basis

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cost+FMV

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adjusted basis

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investments going forward

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gain

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Reg. section 1.61-6(a)

the excess of the amount realized over the unrecovered cost or other basis for the property sold or exchanged

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Gift

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Property received as a result from generosityduring lifetime or death

Excluded in income

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Bequest

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Property a decedent gives in his will

Excluded under §102

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Part-gift, part-sale

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Reg. §1.1001-1(e): The seller-donor has gain to the extent that theamount realized exceeds the adjusted basis of the property

Reg. §1.1015-4: The donee’s basis will be greater of the amountthe donee paid for the property or the adjusted basis of the donor

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Stepped-up basis

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section 1014(a)(1)

Basis of the property acquired from a decedentto the fair market value of the property at the time of the decedent’s death

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stepped-down basis

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section 1014(a)(1)

Basis of the property acquired from a decedentto the fair market value of the property at the time of the decedent’s death

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basis for computing loss

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section 1014

basis is the fair market value at the time of death

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principal residence

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Where vital interests are

Address on tax returns

Drivers license Where do you live

Presumption is where you spend more time at

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deduction

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§162

Can deduct costs associated with business thatare ordinary, necessary, paid or incurred during the taxable year, paid orincurred in carrying on a trade or business

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ordinary

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cost must be customary or expected in the life of the business

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necessary

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cost must be appropriate and helpful

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trade or business

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Reg. §1.183-2(b)

Factors in determining whether an activity isengaged in for profit

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capitalization of expenditures

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section 195

no deduction allowed for start-up expenditures

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amortization

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paying off of debt

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start-up expense

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section 195(c)

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capital expenditure

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provides a benefit that persists, that contributes to generating income over a period of years

section 263

denies deductions for capital expenditures

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Restore

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1.263(a)-3(T)(i)(1)

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capitalize

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To convert (earnings) into capital

To treat (a cost) as a capital expenditurerather than an ordinary and necessary expense

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acquisition cost

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an asset's net price; the original cost of an asset

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capital asset

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section 1221

property held by the taxpayer (whether or not connected with his trade or business) but does not include

stock in business, property used in business, copyright, accounts receivable, US government publication

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capital gain

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The profit when a capital asset is sold orexchanged

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capital loss

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Up to $2,000 of any excess of capital lossesover gains could be deducted

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Long-term capital gain

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§1222

Gain from the sale or exchange of a capitalasset held for more than 1 year, if and to the extent such gain is taken intoaccount in computing gross income

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Short-term capital gain

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§1222

Gain from a sale or exchange of capital assetheld for not more than 1 year

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Long-term capital loss

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§1222

Loss from the sale or exchange of capital assetheld for more than 1 year

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Short-term capital loss

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§1222

Loss from the sale or exchange of capital assetheld for nor more than 1 year

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net long-term capital gain

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§1222

The excess of long-term capital gains for thetaxable year over the long-term capital losses for such year

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net short-term capital gain

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§1222

The excess of short-term capital gains for thetaxable year over the short-term capital losses for such year

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net long-term capital loss

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§1222

The excess of long-term capital losses for thetaxable year over the long-term capital gains for such year

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net short-term capital loss

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§1222

The excess of short-term capital losses for thetaxable year over the short-term capital losses for such year

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net capital gain

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§1222

The excess of the net long-term capital gain forthe taxable year over the net short-term capital loss for such year

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adjusted net capital gain

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§1(h)(3)

Net capital gain reduced by the sum ofunrecaptured sec. 1250 gain and 28% rate gain plus qualified dividend income

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unrecaptured §1250 gain

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§1(h)(6)

The excess of the amount of long-term capitalgain which would be treated as ordinary income if §1250(b)(1) included alldepreciation and the applicable percentage under §1250(a) were 100&, overthe excess of the amount described in paragraph (4)(b) over the amount describein paragraph (4)(A)

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28% rate gain

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§1(h)(4)

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Collectibles gain or loss

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§1(h)(5)

Gain or loss from the sale or exchange of acollectible which is a capital asset held for more than 1 year but only to theextent such gain is taken into account in computing gross income and such lossis taken into account in computing taxable income

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qualified dividend income

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§1(h)(11)(B)

Dividends received during the taxable year from Domestic corporations and Qualified foreign corporations

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corn products property

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§1221 specifically excludes 6 types of propertyfrom capital asset treatment

7th one defined by this case

Exception applies to property which is a normalsource of business income and which is not explicitly excluded by §1221 fromcapital asset

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holding period

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§1223

The time during which a capital asset must beheld to determine whether gain or loss from its sale or exchange is long-termor short-termt

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ordinary income

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Earnings from the normal operations oractivities of a business

For individuals, income that is derived fromwages, commissions, and interest

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capital loss carryover

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The net amount of capital losses that aren'tdeductible for the current tax year but can be carried over into future taxyears5vSQ

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qualified small business stock

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§1202(c)

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depreciation

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§167

Depreciation deduction allowed of a reasonable allowancefor the exhaustion, wear and tear of property used in the trade of business orof property held for the production of income

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amortization

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The act orresult of gradually extinguishing a debt, such as a mortgage, usu. bycontributing payments of principal each time a periodic interest payment is due

§197 Amortization of goodwill andcertain other intangibles

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3-year property

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§168(e)(3)(A)

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5-year property

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§168(e)(3)(B)

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7-year property

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§168(e)(3)(C)

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nonresidential real property

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§168(e)(2)(B)Property which is not residential rentalproperty or property with a class life of less than 27.5 years

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§179 property

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§179(d)(1)

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class life

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§168(i)(1) The class life which would be applicable withrespect to any property as of 1986 under subsection (m) of §167

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salvage value

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§168(d)(4) Treated as zero

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half-year convention

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§168(d)(4)(A)

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mid-quarter convention

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§168(d)(4)(C)

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§1245 property

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§1245(a)(3)

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§1250 property

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§1250(c)

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additional depreciation under §1250

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§1250(b)(1)

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unrecaptured §1250 gain

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§1(h)(6)

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residential real property

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§168(e)(2)(A)(i), (ii) Any building or structure if 80% or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units

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mid-month convention

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§168(d)(4)(B)