Topic 2

Tax Avoidance

Legal Act of arranging your transactions to minimize taxes paid

Tax Evasion

Willful attempt to defraud the government by not paying taxes legally owed

Gross Income

Everything you Mmake

Taxable Income

Taxable income is the portion of your gross income that is subject to federal, state, and local income taxes

Not considered income

Gifts, Interest from Municipal Bond, Inheritance, Alimony, Winnings for a personal injury suit

Ordinary

Type of income taxed at the ordinary rate provided in the tax rate schedules

• Any income that is taxed at a person's regular or marginal income tax rate.

Capital

Type of income Gains or losses on the disposition or sale of capital assets

• Capital income is money you earn from the sale or use of capital assets, such as stocks, bonds, and real estate, rather than from your regular day-to-day work.

Capital Gains/Long Term

What type of income is taxed at a lower preferential rate?

Examples of Capital Assets

Owning your house, car, stocks and bonds

FOR

Type of Deduction allowed from gross income, that gets you adjust gross income

Types of FOR Deductions

Businesses, Investing, Deductions about line being AGI

From Deduction

Type of deduction allowed from the adjusted gross income that gets you taxable income

Itemized Deductions

• Medical and Dental Expense – Deductible to the extent these expenses exceed %7.5% of AGI

• State & local Income Taxes (limit to 10,000)

• Sale Taxes

• Real Estate taxes on your primary residence

• Mortgage Interest

• Gift to charities

• Miscellaneous deductions

• Property Tax for personal residence

Recognized Income

Income you must declare on your taxes