ACC 344 Lecture Notes - Lecture 2: Adjusted Gross Income, Health Savings Account, Standard Deduction
1
Tax formula for individuals: Table I: 2-1 on page 2-2
Income
Ioe, roadl oeied, iludes all the tapaer’s ioe, oth taale ad
nontaxable.
• It is not specifically defined in the tax code
• It does not include a return of capital or receipt of borrowed funds
o Example: Bob sells a piece of property for $1,000. He has a cost basis of
$700. Bob will include $300, not $1,000, in total income.
Income (from all sources) $xx,xxx
Less: Exclusions (x,xxx)
Gross income $xx,xxx
Less: Certain deductions for AGI (x,xxx)
Adjusted Gross Income $xx,xxx
Less: The greater of:
Itemized deductions, or
The standard deduction (x,xxx)
Less: Personal and dependency exemptions (x,xxx)
Taxable income $xx,xxx
Tax on taxable income (see Tax Rate
Schedules)
$ x,xxx
Less: Tax credits (including Federal income
tax withheld and other prepayments of
Federal income taxes)
(xxx)
Tax due (or refund) $ xxx
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2
Exclusions
Not all income is taxable. A bunch of stuff does not count.
Listed in Table I: 2-2 on page 2-3. These do NOT have to be disclosed on the tax
return.
Gifts Life Insurance Welfare Certain
Scholarships
Certain Pmts
for Injury
Certain
Employee
Benefits
Certain
Foreign
Income
Tax-Exempt
Interest
Series EE Bond
Interest
Leasehold
Improvements
Meritorious
Achievement
Awards
Certain
Divorce
Payments
Gain from Sale
of Home
Roth IRA
Distributions SS Benefits
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3
Gross Income = Income – Exclusions
Stuff that must be included on the tax return:
Section 61 of the IRS code has a partial list of what counts.
Therefore, even stuff not on the list has to count.
Example: Income from illegal activities is not on the list, but needs to go on the tax return
Table I: 2-3 on page 2-4 lists what counts
Life insurance is on the exclusion and inclusion list:
In general, proceeds received from a policy due to the death of the insured do not count.
However, if you sell the life insurance policy before death, then those proceeds will be
taxable.
Wages Business
Gross Inc.
Gains from
Property
Sales
Interest
Rents Royalties Dividends Alimony
Annuities
Life
Insurance
Proceeds
Pensions COD Income
P’ship
Income IRD Trust/Estate
Income
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Document Summary
Tax formula for individuals: table i: 2-1 on page 2-2. Less: tax credits (including federal income tax withheld and other prepayments of. I(cid:374)(cid:272)o(cid:373)e, (cid:271)roadl(cid:455) (cid:272)o(cid:374)(cid:272)ei(cid:448)ed, i(cid:374)(cid:272)ludes all the ta(cid:454)pa(cid:455)er"s i(cid:374)(cid:272)o(cid:373)e, (cid:271)oth ta(cid:454)a(cid:271)le a(cid:374)d nontaxable. (xxx) $ x,xxx: it is not specifically defined in the tax code, it does not include a return of capital or receipt of borrowed funds, example: bob sells a piece of property for ,000. Bob will include , not ,000, in total income. Listed in table i: 2-2 on page 2-3. These do not have to be disclosed on the tax return. Stuff that must be included on the tax return: Section 61 of the irs code has a partial list of what counts. Therefore, even stuff not on the list has to count. Example: income from illegal activities is not on the list, but needs to go on the tax return. Table i: 2-3 on page 2-4 lists what counts.
