Federal Income Tax

Any econonomic benefit or any clearly realized accession to your wealth

Increased or decreased value of an asset not taken into account for tax purposes until realized through a sale or other disposition of the assets

Property or funds received without restriction as to use or disposition; in otherwords, if you are free to use the proeprty or funds and, in the case of funds, commingle them with your assets. DOES NOT INCLUDE if held in escrow.

• Property or funds received under a claim of right must be reported for
• tax purposes even though the taxpayer may later be required to return
• the property, funds or their equivalent.

This is taxable to the receiving spouse and deductible to the paying spouse.

• Requirements:
• -writing: must be pursuant to a written divorce or separation agreement
• -living together disallowed: cannot be members of the same household
• -cease at or before death: liability to make payments must cease at or before death
• -cash: payments must be cash

This is non-taxable to the receiving spouse and non-deductible to the paying spouse.

If alimony payments conditioned on some event related to the children then the amount conditioned will be deemed child support.

Reduction in purchase price

Insolvency or bankruptcy of the taxpayer

Gift: Foregiven as a gift

Life insurance: gross income does not include proceeds paid by reason of death of the insured. It DOES include interest paid if payment in installments

Inheritances: gross income does not include amounts received by bequest, device, or inheritances. WATCH FOR inheritances in lieu of fees

Gift: gross income does not included amounts by gift

Tort awards: Gross income does not include damages receiveed on account for physical injury or sickness. DOES include emotional distress, but not if related to a physical injury.

Employee related exclusions

Transfer made out of detached and disinterested generosity.

Gross income does not include amounts by gift

Donee receives a carryover basis from the donor

Receipts from Health and Accident Insurance: exclude the value of hte insurance coverage from gross income

Life insurance provided: this excludes premiums on the first $50,000

Meals and lodging: if 1) provide for the conveniece of hte employer, 2) in-kind, 3) employer's premises

Other Tax-Free Fringe Benefits: de minimis, no additional cost to employer, qualified employee discounts, contributions to qualified pension plans, employee safety or lenght of service awards.

Ordinary and necessary business expenses

Depreciation of business assets

Capital losses up to $3,000

Alimony

Moving Expenses

Limited deduction for school loan interest

Home mortgage interest: deduct interest for the first $1 million on principal and secondary personal residence

Home equity loan: up to $100,000 mortgage taken out on equity of home

State and local taxes: does not apply to sales tax

Unreimbursed casualty losses:

Unreimbursed medical expenses:

Charitable contributions:

Miscellaneous duductions:

Personal v. business expenses:

Investment fees or expenses:

Personal exemption or dependent exemption:

Itemized deduction

1) if loss is greater than $100

2) loss is sudden and unexpected

3) only to the extent the loss exceeds 10% of AGI

Itemized deduction

To the extent that they exceed 7.5% of AGI

Itemized deduction

Personal expenses are not deductible

Legal fees are deductable only if for business or investment settings.

Legal fees in divorce are personal UNLESS for 1) tax advice for divorce or 2) recipient spouse incurs fees to generate taxable alimony income

Assignment of income rule: Income must be taxed to he or she who earned it.

Ownership rule: income from proeprty is taxed to he or she who owns the property

Income is when she receives paymend and takes deductions for eligible expenses when payment is made.

Constructive receipt: when funds or proeprty are credited to her account, set apart, or otherwise made available so that she may draw upon them.

Income is 1) when all events have occurred that fix the right to receive it, and 2) when the amount can be determined with reasonable accuracy.

Deduction is 1) when all events have occurred that establish the fact of laibility, and 2) whent he amount can be determined with reaosnable accuracy

Realization: this happens at the sale, disposition or exchange of an asset

Recognition: when the income is reported to teh government

Generally recognize income when realized.

Amount realized - adjusted basis = gain/loss

Amount realized = cash + property + mortgages/liabilities assumed by buyer

Cost basis: taxpayer has a basis in the cost of the proeprty included money paid and borrowing incurred in connection with the purchase

Divorce property settlements: transfer of property incident to divorce is not taxable to either party. Take a substituted basis

Gifted property: donee takes a substituted basis

Inherited property: Take a basis of FMV at the date of decedent's death

Like-kind exchanges: no gain or loss recognized when a taxpayer exchanges property held for productive use in a business or for investment for like-kind property also held for productive use in business or for investment.

Involuntary conversion:

Sale of principal residence:

No gain is recognized if property is involuntarily lost due to theft, fire, seizure, requisition or condemnation is converted to proeprty that is similar or related in service or use.

If converted to money, gain or loss is not recognized if the purchaser repaces the property with that which is similar or related in service or use within two years fromt he date of involuntary conversion.

Gain or loss will be recognized to the extent that money received exceeds the cost of the replacemetn property.

Up to $250k ($500k for joint returns) of gain form the sale of a principal residence can be excluded if the proeprty has been used and owned as the taxpayer's principal for a period aggregating two years during the fire year period ending on the date of the sale.