AAMS Module 5
Gross Income - Answer Income from all sources unless specifically excluded by tax law
Examples of income exclusions - Answer Life insurance proceeds received by reason of death of the insured, muni bond interest, gift/inheritance, workers comp, child support, most scholarships received, and many employee fringe benefits
Deductions for AGI/Above the line deductions - Answer Reduce total income dollar for dollar. Examples: deductible IRA contributions, Keogh contributions for the unincorparted business owner, qualified education interest, alimony paid, self employed health insurance deductions, qualified job related moving expenses, tuition and fees deduction, one half of the self employment tax, and the penalty on early withdwal of savings
Gross Income - Answer Technically, income from all sources, unless specifically excluded. Examples include wages, commissions, tips, honorariums, interest, dividends, net business income, rents, royalties, alimony received, unemployment compensation, gambling income, and partnership income
Total Income - Answer The amount reported about three-fourths of the way down the front of the form 1040. Total income may be thought of as the gross income reduced by all exclusions. Other items that are included in calculating total income are items that reduce the income. Some of these items may include losses from sole proprietorships or up to $3,000 of net capital losses
Adjusted Gross Income - Answer The amount remaining after subtracting adjustments to income
Taxable Income - Answer Adjusted gross income reduced by personal and dependency exemptions and further reduced by the greater of the standard deduction or itemized deductions Adjustments to income - Answer Items that reduce total income to arrive at adjusted gross income. Examples include deductible IRA contributions, self employed health insurance deduction, Keogh contributions, qualified job related moving expenses, alimony paid, and penalties on early withdrawal of
savings. Often referred to as above the line deductions or deductions for AGI
Exclusions - Answer Items of income that represent an economic benefit but are not included as income:
includes life insurance proceeds received, a gift or inheritance received, workers compensation benefits,
child support received, municipal bond interest, and many employee fringe benefits
Personal Exemption - Answer An amount subtracted from adjusted gross income to arrive at taxable income; generally a taxpayer may take a personal exemption for himself or herself, a spouse and dependents
Tax Credit - Answer a dollar for dollar offset against the tax liability
Itemized Deductions - Answer These are deductions for expenses that are generally personal in nature. Examples include deductions for property taxes and mortgage interest on a residence, medical expenses
exceeding 10% of AGI, charitable contributions and investment interest expenses. These often are referred to as below the line deductions or deductions from AGI
Standard Deduction - Answer Refers to an allowance granted to most individuals in lieu of itemizing deductions. A taxpayer has the option of using the greater of total itemized deductions or the standard deduction
What is the Alternative Minimum Tax - Answer The AMT is a tax imposed on individuals who use various deductions, exemptions, and tax sheltering mechanisms as a way of making those individuals pay a minimum amount of tax. Certain tax preference or adjustment items, such as tax exempt interest on qualified private activity municipal bonds, depletion allowances and intangible drilling costs from oil and gas activities, are adjustments to taxable income. The alternative minimum taxable income is taxed at either a 26% or 28% rate
What is the kiddie tax - Answer Under the kiddie tax rules, an individual eligible to be claimed as a dependent may not use his or her own personal exemption. For children subject to the kiddie tax, the first $1,050 of unearned income is sheltered by the child's limited standard deduction; the next $1,050 is
taxed to the child at the child's tax rate (typically 10%). Any unearned income in excess of the first $2,100 is taxed to the child at the parents marginal tax rate. The kiddie tax applies to children under age
Gross Income - Answer Income from all sources unless specifically excluded by tax law
Examples of income exclusions - Answer Life insurance proceeds received by reason of death of the insured, muni bond interest, gift/inheritance, workers comp, child support, most scholarships received, and many employee fringe benefits
Deductions for AGI/Above the line deductions - Answer Reduce total income dollar for dollar. Examples: deductible IRA contributions, Keogh contributions for the unincorparted business owner, qualified education interest, alimony paid, self employed health insurance deductions, qualified job related moving expenses, tuition and fees deduction, one half of the self employment tax, and the penalty on early withdwal of savings
Gross Income - Answer Technically, income from all sources, unless specifically excluded. Examples include wages, commissions, tips, honorariums, interest, dividends, net business income, rents, royalties, alimony received, unemployment compensation, gambling income, and partnership income
Total Income - Answer The amount reported about three-fourths of the way down the front of the form 1040. Total income may be thought of as the gross income reduced by all exclusions. Other items that are included in calculating total income are items that reduce the income. Some of these items may include losses from sole proprietorships or up to $3,000 of net capital losses
Adjusted Gross Income - Answer The amount remaining after subtracting adjustments to income
Taxable Income - Answer Adjusted gross income reduced by personal and dependency exemptions and further reduced by the greater of the standard deduction or itemized deductions Adjustments to income - Answer Items that reduce total income to arrive at adjusted gross income. Examples include deductible IRA contributions, self employed health insurance deduction, Keogh contributions, qualified job related moving expenses, alimony paid, and penalties on early withdrawal of
savings. Often referred to as above the line deductions or deductions for AGI
Exclusions - Answer Items of income that represent an economic benefit but are not included as income:
includes life insurance proceeds received, a gift or inheritance received, workers compensation benefits,
child support received, municipal bond interest, and many employee fringe benefits
Personal Exemption - Answer An amount subtracted from adjusted gross income to arrive at taxable income; generally a taxpayer may take a personal exemption for himself or herself, a spouse and dependents
Tax Credit - Answer a dollar for dollar offset against the tax liability
Itemized Deductions - Answer These are deductions for expenses that are generally personal in nature. Examples include deductions for property taxes and mortgage interest on a residence, medical expenses
exceeding 10% of AGI, charitable contributions and investment interest expenses. These often are referred to as below the line deductions or deductions from AGI
Standard Deduction - Answer Refers to an allowance granted to most individuals in lieu of itemizing deductions. A taxpayer has the option of using the greater of total itemized deductions or the standard deduction
What is the Alternative Minimum Tax - Answer The AMT is a tax imposed on individuals who use various deductions, exemptions, and tax sheltering mechanisms as a way of making those individuals pay a minimum amount of tax. Certain tax preference or adjustment items, such as tax exempt interest on qualified private activity municipal bonds, depletion allowances and intangible drilling costs from oil and gas activities, are adjustments to taxable income. The alternative minimum taxable income is taxed at either a 26% or 28% rate
What is the kiddie tax - Answer Under the kiddie tax rules, an individual eligible to be claimed as a dependent may not use his or her own personal exemption. For children subject to the kiddie tax, the first $1,050 of unearned income is sheltered by the child's limited standard deduction; the next $1,050 is
taxed to the child at the child's tax rate (typically 10%). Any unearned income in excess of the first $2,100 is taxed to the child at the parents marginal tax rate. The kiddie tax applies to children under age
