Individual Income Tax - Gross Income

These flashcards cover key concepts from the lecture notes on individual income tax, specifically focusing on gross income, definitions, and taxation principles.

What is the definition of gross income according to the Internal Revenue Code Section 61?

Gross income is all income from whatever source derived, except as otherwise provided.

What doctrine states that no income exists until a taxpayer has recovered their capital investment?

The recovery of capital doctrine.

What is the basic rule for recognizing income as a taxpayer?

A taxpayer recognizes income when they receive an economic benefit, realize income, and no tax law provision allows for exclusion or deferral.

Name three examples of items that are included in gross income.

Business income, rents, royalties.

What is meant by 'economic benefit' in the context of gross income?

An economic benefit is receiving something of value, such as money, property, or services.

Why is property treated as an economic benefit for tax purposes?

Property has value; it can be used, rented, or sold for money.

Is borrowed money considered income?

No, borrowed money provides no economic benefit because it creates a duty to repay.

What does realization mean in tax terms?

Realization occurs when property rights change with measurable certainty and amount, typically through a transaction.

What are realization triggers in regard to income?

Events that cause income to be realized, including the receipt of money, property, or other benefits.

What is the recognition of income?

The act of reporting realized income on a tax return, which subjects it to taxation.

What does the term 'basis' refer to in tax context?

Basis refers to the cost of an item for tax purposes, which is used to determine taxable income upon sale.

How does the IRS treat gifts or inheritances in terms of gross income?

Gifts and inheritances are excluded from gross income.

Under community property laws, how is income from property earned during marriage typically handled?

Income is considered owned equally by both spouses, regardless of who earned it.

What is the assignment of income doctrine?

It prevents a high tax bracket taxpayer from shifting taxable income to a lower bracket taxpayer.

How is gross income from business defined?

Gross income from business equals total sales revenue minus the cost of goods sold.

What must an unincorporated sole proprietor submit as part of their tax return?

Schedule C as part of Form 1040.

What are the tax consequences of an S corporation?

An S corporation generally does not pay federal income tax directly; income flows through to the shareholders.

What distinguishes a C corporation from a partnership in terms of taxation?

C corporations pay federal income tax on profits, while partnerships have no separate income tax and pass income directly to partners.

What factors determine if a Social Security benefit is taxable?

Taxability depends on the recipient's filing status and provisional income.

What is the effect of the overall basis limit for gambling losses starting tax year 2026?

Losses deductible are capped at 90% of winnings.

What constitutes alimony under tax law?

Alimony must be a cash payment that terminates upon the recipient's death and cannot be designated as something other than alimony.

What happens to alimony payments after the TC&JA 2017 changes?

Alimony is no longer deductible by the payer or taxable to the recipient for divorce agreements executed after December 31, 2018.

What is the general rule for recognizing debt discharge as income?

Debt forgiveness amounts are recognized as income unless the taxpayer is insolvent or if the debt is discharged in bankruptcy.

Under what conditions can you exclude interest from U.S. savings bonds from gross income?

Interest can be excluded if used for qualified tuition and related expenses.

What constitutes the cutoff date for the ex-dividend date?

If you buy stock before the ex-dividend date, you'll receive the dividend; if on or after, the seller keeps it.