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Tax Law Basics. Income Overview. Taxable income versus nontaxable income (including excluded income) Earned income versus unearned income. Taxable Versus Nontaxable Income. Basic tenet of the income tax code: Income or gain, from whatever source derived, is taxable ...

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Presentation Transcript
income overview
Income Overview
  • Taxable income versus nontaxable income (including excluded income)
  • Earned income versus unearned income

NTTC Training 2013

taxable versus nontaxable income
Taxable Versus Nontaxable Income
  • Basic tenet of the income tax code:

Income or gain, from whatever source derived, is taxable...

unless the code says it is not taxable

  • Table B on D-1 in Pub 4012 has examples of income that is not taxable

Pub 4012, Page D-1

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taxable versus nontaxable income quiz
Taxable Versus Nontaxable Income Quiz

Pub 4012, Page D-1

  • Is this taxable?
    • T-Bill interest income?
      • Yes (state may differ)
    • Church bingo winnings?
      • Yes, a prize
    • Inherited house?
      • No
    • Interest earned inside a qualified IRA?
      • No (wait until distributed)

NTTC Training 2013

taxable versus nontaxable income1
Taxable Versus Nontaxable Income
  • Even though not taxable, must input certain nontaxable income
    • Exempt interest income
    • Exempt interest income dividends
  • May affect other calculations

e.g. taxable portion of social security benefits

NTTC Training 2013

earned versus unearned income
Earned Versus Unearned Income

Pub 4012, Page I-1

  • Definition differs – must check rules for particular benefit
  • Example:
    • For earned income credit
      • Earned income does not include penal income
    • For dependent care credit
      • Earned income does include penal income

NTTC Training 2013

earned versus unearned income1
Earned Versus Unearned Income
  • Earned income usually includes

(for in-scope returns):

    • W-2 wages
    • Schedule C – business income
    • (there are more types of earned income)

NTTC Training 2013

earned versus unearned income2
Earned Versus Unearned Income
  • Investment income is unearned income for in-scope returns – examples:
    • Interest
    • Dividends
    • Capital gains or losses
    • Royalties

NTTC Training 2013

earned versus unearned income3
Earned Versus Unearned Income
  • Other types of unearned income for in-scope returns
    • Land rents
    • Unemployment
    • Retirement income
    • Social security benefits

(there are more types of unearned income)

NTTC Training 2013

deductions and credits
Deductions and Credits
  • A grace of the law
  • If there is not a provision to allow the deduction, it is not deductible
  • To claim any credit, must satisfy all requirements

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deductions
Deductions
  • Reduce income otherwise subject to tax
  • Types:
    • Adjustments to gross income
    • Itemized or standard deduction
    • Personal exemption deduction

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credits
Credits
  • Reduce tax liability dollar for dollar
    • Nonrefundable
      • Limited to amount of tax
      • No cash back
    • Refundable
      • Cash back if exceed tax liability

NTTC Training 2013

tax law basics1
Tax Law Basics

Comments?

Questions?

NTTC Training 2013

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