Federal Income Tax

a QuickStudy Digital Law Reference

Elena Marty-Nelson

• Publisher: QuickStudy Reference Guides
• Year: 2019
• ISBN:
  9781423243298
• Topic: Diritto
• Subtopic: Diritto tributario

BarCharts, Inc was founded on our law guides created by the owner, designed to understand the significance of details within the larger scheme of the law, as a daily refresher, and to review before the Bar Exam. Twenty five years later we keep those guides up to date for students, paralegals and practicing lawyers to have the most handy legal reference to the most important points of the law possible in this digital guide.
Digital guide includes:

• Administration
• Personal Income Tax
  • Definitions
  • Gross Income
  • Exclusions
  • Deductions
  • Depreciation Deductions
  • Tax Imposed
  • Capital Gains & Losses
• Corporate Income Tax
  • Types of Businesses
  • Special Corporate Deduction Rules
  • Mergers, Acquisitions & Recapitalizations
  • Tax-Free Corporate Formation Rules
  • Corporate Distribution Rules

Personal Income Tax

Definitions

• INCOME

1. Gross income [§§61, 71–90, 101–140]
   1. Starting point for computing the tax base
   2. Income not excluded from taxation
   3. Income from whatever source derived
   4. Construed broadly
2. Exclusions [§§71–90, 101–140]
   1. Items Congress has exempted from taxation
   2. Construed narrowly
3. Adjusted gross income (AGI) [§62]
   1. Gross income less deductions listed in §62
   2. §62 does not itself make an item deductible
4. Taxable income [§63]
   1. Gross income less all deductions
   2. Amount against which tax rates are applied to compute tax

• DEDUCTIONS

1. Most deductions reflect current or prior expenditures of money
   1. Accrual taxpayers may be able to deduct future outlays
2. Items directly reducing income: No general presumption that anything is deductible; no deduction unless provided by the IRC
3. Allowable expenses and losses subtracted from gross income:
   1. Deductions for all taxpayers [§§161–199]
   2. Deductions for individuals [§§211–223]
   3. Deductions for corporations [§§241–249]
   4. Items not deductible in whole or part [§§261–280H]
   5. Individual must choose standard deduction or itemization for many items [§63(a)–(b)]
4. Personal exemptions [§§151–152]
   1. Deduction for taxpayer, spouse, and dependents [§151(b)–(c)]
   2. For tax years before 2026, deduction for personal exemptions is 0 [§151(d)(5)(A)]

• CREDITS [§§21–53]

1. Direct reductions in tax liability
   1. Dollar of credit saves dollar in tax, whereas dollar of deduction saves only dollar multiplied by tax rate
   2. Many credits have dollar limits or phase out as AGI rises; some require basis adjustments
   3. Inflation adjustments apply to some credits
2. Many credits are tied to specific outlays:
   1. Dependent Care Credit [§21]; to facilitate employment; limited to 20%–35% of employment-related dependent care expenses up to $3,000 for 1 dependent and $6,000 for 2 or more dependents
   2. Adoption Credit [§23] for qualified adoption expenses of up to $13,850 in 2018 subject to income phase out; if adopted child has special needs, $13,850 credit in 2018 regardless of expenses [§23(a)(3)]
   3. Child Tax Credit [§24] for tax years before 2026 credit of up to $2,000 per qualifying child under 17 (up to $500 non-refundable credit for dependents other than qualifying child); subject to income phase out; maximum refundable credit per child is $1,400
   4. Education credits [§25A]
      1. American Opportunity Tax Credit up to $2,500 in first 4 years of post­secondary education expenses per eligible student; subject to income limits
      2. Lifetime Learning Credit of 20% of qualified tuition and related expenses up to $10,000; maximum of $2,000 credit per return; income limits
   5. Saver’s Credit for contribution to retirement plan or IRA [§25B]; 50%, 20%, or 10% of contributions up to $2,000; limited by AGI
   6. Earned Income Credit [§32]: Refundable credit; requires earned income from job or taxpayer’s business; subject to AGI phase out and investment income limits; credit percentage increases with number of children with maximum credit percentage of 45% for 3 or more children
   7. Residential energy efficient credit [§25D] for expenses for qualified solar electric property expenditures and qualified solar water heating expenditures for property placed in service through 2021, at applicable percentages. H. Business credits to provide incentives for low-income housing, energy invest­ments, rehabilitation expenditures for historic structures, etc.
3. Refundable credit can generate a refund in excess of actual tax
4. Nonrefundable credit can only offset tax

• BASIS [§§1011–1023]

1. A key concept in income taxation
2. Investment in property for tax purposes
   1. Sum of nondeductible capital expenditures with respect to asset
   2. Adjusted for subsequent events, such as depreciation and improvements [§1016]
3. Basis is generally taxpayer’s cost [§1012]
   1. Special rules for gifts, inheritance, certain exchanges, etc.
   2. Allocation rules for stock held in brokerage accounts and dividend reinvestment plans [§1012(c)–(d)]
4. No gross income on disposition unless proceeds exceed basis [§§61(a)(3), 1001]
   1. Loss deductible only if IRC § authorizes [§§165–166]

Gross Income

• CONCEPTS

1. Gross income includes accretions to wealth (net of cost of goods sold and basis of property sold), unless excluded by an IRC §
   1. Computed before any deduction for related expenses
   2. Can include cash, other property, receipt of services, and debt relief
2. No requirement that gross income be earned from labor or capital
   1. Congress intended to exert its taxing power to fullest [Comm’r v. Glenshaw Glass Co.]
   2. Even punitive damages, illegal income, and treasure trove are gross income [Reg. §1.61-14(a)]
3. Income (and deductions) can be reallocated when same interests control multiple taxpayers [§482]
4. Security deposits are not gross income [Comm’r v. Indianapolis Power & Light Co.]
   1. Distinguished from prepayments for services, rent, etc.
   2. Factors include obligation to repay that is nomi­nally absolute, treatment on recipient’s books, and paying interest on deposit

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