Chapter 4 Gross incomes Exclusions
Chapter 4 Gross income: Exclusions
Learning Objectives Explain the conditions that must exist for an item to be excluded from gross Income Determine whether an item is nome Decide whether specific exclusions are available Understand employment-related fringe benefit exclusion items
Learning Objectives • Explain the conditions that must exist for an item to be excluded from gross income • Determine whether an item is income • Decide whether specific exclusions are available • Understand employment-related fringe benefit exclusion items
tems That Are not Income · Unrealized income Land valued at $20,000 beginning of year appreciates to $40,000 at end of year, the $20,000 increase in value is unrealized income and is not subject to tax
Items That Are Not Income • Unrealized income • Land valued at $20,000 beginning of year appreciates to $40,000 at end of year, the $20,000 increase in value is unrealized income and is not subject to tax
tems That Are not Income Self-help income The amount saved is not subject to tax Cleaning your own carpet Repairing your car Rental value of personal use property Selling price of property Only the gain, not the entire selling price
Items That Are Not Income • Self-help income – The amount saved is not subject to tax – Cleaning your own carpet – Repairing your car • Rental value of personal use property • Selling price of property – Only the gain, not the entire selling price
Major Statutory Exclusions o Social generosity or benevolence Public assistance programs Economic incentives Exclusion of certain scholarships sec。179 Confusion avoidance Compensation or gift Tax exempt interest
Major Statutory Exclusions • Social generosity or benevolence – Public assistance programs • Economic incentives – Exclusion of certain scholarships – Sec. 179 • Confusion avoidance – Compensation or gift – Tax exempt interest
Gifts And inheritance
Gifts And Inheritance
Life nsurance proceeds Paid by reason of death, generally non taxable Policy matures or is surrendered, the excess of proceeds over the premiums paid is taxable to recipient Dividends on lie insurance and endowment policies are normally non taxable because they are considered return of premiums paid
Life Insurance Proceeds • Paid by reason of death, generally nontaxable • Policy matures or is surrendered, the excess of proceeds over the premiums paid is taxable to recipient • Dividends on life insurance and endowment policies are normally nontaxable because they are considered return of premiums paid
Adoption Expenses Adoption credit -Congress provides tax benefits for qualified adoption expenses in the form of tax credits or an exclusion for amounts paid pursuant to an adoption assistance plan created by an employer Employee is allowed a $5,000 per child exclusion($6,000 for a special needs child)
Adoption Expenses • Adoption credit - Congress provides tax benefits for qualified adoption expenses in the form of tax credits or an exclusion for amounts paid pursuant to an adoption assistance plan created by an employer • Employee is allowed a $5,000 per child exclusion ( $6,000 for a special needs child)
Awards For meritorious Achievement · Awards for relig。ustc charitable, scientifiCs etc. are not taxable if Did not enter contest Is not required to perform substantial future services Designates a qualified charitable organization to receive the payment
Awards For Meritorious Achievement • Awards for religious, charitable, scientific, etc. are not taxable if – Did not enter contest – Is not required to perform substantial future services – Designates a qualified charitable organization to receive the payment
Scholarships And Fellowships sch。 arships are excluded for degree candidates Tuition Fees Books Supplies Equipment · not room and board
Scholarships And Fellowships • Scholarships are excluded for degree candidates • Tuition • Fees • Books • Supplies • Equipment • Not room and board
