Sources of Income Taxes and Individual Deductions
Sources of Income Taxes and Individual Deductions MGMT 504
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This 3 page Class Notes was uploaded by Emily McIlhattan on Thursday February 19, 2015. The Class Notes belongs to MGMT 504 at Purdue University taught by Jason Stanfield in Winter2015. Since its upload, it has received 168 views. For similar materials see Tax Accounting in Accounting at Purdue University.
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Date Created: 02/19/15
MGMT 504 Sources of Income Cont d Current Lecture This lecture continues on Sources of Income Finally completing it I Injuries and Damages a What happens when you sue somebody taxability of damages awarded by court i Loss of income taxable almost always 1 Exception payments related to personal physical injury 2 Reimbursement for expenses making you whole again ii Property Destroyed treat it as if you had sold it for whatever you received in damages 1 The property is treated as if sold for the amount of payment received iii Personal Injury Damages pretty broad category some neganUons 1 Include emotional distress unless associated with physical injury like a car crash 2 Punitive damages always taxable you are just lucky awarded by court to punish offending party and change behavior not to make you whole again b Workers Compensation insurance required for employers always excluded c Scholarships tuition ones excluded room and board are not because you would do this regardless if you were in school d Gifts and Inheritances not taxable to recipient i Gifts more control for the giver transfers by living donors must be given without expectation of a return not a transaction 1 Employers cannot give employees gifts 2 Employee death bene ts an amount paid by an employer to the family of a deceased employee ii Foreign Earned Income US taxes are supposed to be worldwide but they can be excluded if 1 Taxpayer is a legal real resident of another country where the income is earned 2 Present in foreign country at least 330 days during any 12 consecutive months not necessarily in tax period year a Limited to 97600 for 2013 iii Unemployment Compensation taxable it is a substitute for your earned income 1 Basis invested capital 2 Adjusted Basis invested capitalcapital recovery capital left to recover Next Lecture Textbook Reference Ch 6 l Deductions De ned a Deductions are speci cally allowed subtractions used to calculate adjusted gross income AGI or taxable income subtraction from tax base via legislative grace i Difference between an exclusion and a deduction en exclusion can be looked at like an omission from gross income while a deduction can be divided into two different types 1 For AGI to arrive at taxable income don t need to itemize everybody can take these but they are subject to a speci c limitation a Deductions subtracted form gross income to arrive at AGI b These deductions are available for all individual taxpayers whether itemized or not c Mostly business related or pro t motivated expenses i Expenses associated with rental or royalty income through schedule E net amount expenses are taken out 2 From AGI Deductions from AGI to taxable income itemized a Deductions from AGI to arrive at taxable income comprised of the greater of itemized deductions or the standard deduction and personal exemptions b Generally speaking a person would rather have a lower AGI and lower taxable income than lower taxable income and the same AGI because AGI is in the governments eyes your ability to pay ll Student Loan lnterest deductible to a maximum of 2500 a year lll Moving Expenses deducted by the taxpayer if the move is forjob reasons a If you are being reimbursed none of this matters anymore i Distance Test new job has to be 51 more miles than your old commute ii Time test you must be there 39 weeks out of the last 52 weeks 9 months out a year waived for death disability or required transfer keep emails and documentation b Cost of moving you and your stuff and that s it not your car etc
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