1.5 Gross Income - Inclusions

1. Gross Income Defined 

Code Sec.61

2. Timing of Recognition 

1) Overall Accounting Methods

(1) Cash receipts and disbursements method
(Exception) prepaid interest expenses

(2) Accrual method
(Exception) prepaid rental income, prepaid interest income

(3) Hybrid method

2) Special Accounting Methods

(1) Long-term contract

(2) Installment method <Form 6252>
a) Recognize when cash is received
b) Gross profit percentage

3. Specific Items of Gross Income 

1) Salaries, Wages, Tip (Compensation for Services)

2) Interest Income <Schedule B>

(1) Taxable interest
a) Federal bonds (U.S. obligations)
b) Industrial development bonds
c) Corporate bonds
d) Premiums received for opening a savings account (e.g., prize and awards) are included at FMV
e) Part of the proceeds from an installment sale is taxable as interest.
f) Interest paid by federal or state government for late payment of tax refund is taxable.

(2) Tax-exempt interest (Reportable but not taxable)
a) State and local government bonds (municipal bonds)
b) Bonds of a U.S. possession
c) Series EE (U.S. government savings) bounds

(3) Amortization of bond premium

(4) Unearned income of a child under 18 ("Kiddie Tax")

3) Dividend Income <Schedule B>

(a) Dividends = return on investments (earnings & profits) *lower tax rate

(b) Return of capital = return of investments *nontaxable

(c) Capital gain distribution

4) IRA Distributions (Traditional IRA Income)

5) Pensions and Annuities

6) Social Security Benefits (Social Security Income)

0 - 85% taxable
Provisional income = AGI + Tax-exempt interest + 50% of SS benefits

7) Tax Refund

(1) Tax Refund of State & Local Taxes
a) Prior year itemized deduction: taxable
b) Prior year used standard deduction: nontaxable

(2) Tax Refund of Federal Income Taxes: nontaxable

8) Payment Pursuant to a Divorce

(1) Alimony and spousal support: taxable (before 12/31/2018)
(2) Child support: nontaxable
(3) Property settlement pursuant to divorce: nontaxable

9) Business Income or (Loss) <Schedule C>

(1) Gross Business Income

Uniform Capitalization (UNICAP) Rules
a) Produced for use
b) Produced for sale
c) Acquired for resale

(2) Business Expenses

a) Deductible business expenses
  1 Salaries and commissions paid to others
  2 State and local business taxes paid
  3 Office expenses and rent expenses
  4 Business travel expenses
  5 Business meal expenses at 50% (directly related or associated with)
  6 Depreciation, repair, and maintenance of business assets
  7 Interest expense on business loans
  8 Insurance expense for business
  9 Employee fringe benefits
10 Legal and professional services
11 Bad debts (accrual basis taxpayer only)
12 Business gift ($25 per donee per year)
b) Nondeductible expenses
  1 Personal (Non-business) expenses
  2 Salaries paid to a sole proprietor
  3 Federal income taxes (above the line deduction)
  4 Business entertainment expenses
  5 Bad debt loss of a cash basis taxpayer
  6 Bribes, kickbacks, fines, penalties, and other payments
  7 Political contributions and state/federal lobbying expenses
  8 Charitable contributions (itemized deductions)
c) Expenses of an office in the home

(!) Nonbusiness (personal) bad debts: short-term capital loss (Schedule D)

(3) Federal Self-Employment Tax <Schedule SE>

(4) Net business losses - Net operating losses (NOL)

10) Gains (Losses) on Disposition of Property

Capital assets: capital gain - Schedule D
Business property: ordinary gain - Form 4797

11) Rental Income or (Loss) <Schedule E>

(1) Security deposit (refundable or non-refundable)
(2) Prepaid rental income
(3) Leasehold improvements made by lessees (FMV)
(4) Lease cancellation payment (taxable)
(5) Rental of a vacation home
a) Less than 15 days: personal residence
b) 15 or more days: Schedule E

12) Income From Partnership, S Corporation, Estates, Trust <Schedule E>

13) Farm Income or (Loss) <Schedule F>

14) Unemployment Compensation (Unemployment Benefits)

4. Other Items of Gross Income

1) Prizes and Awards

2) Gambling Winnings

3) Illegal Income

4) Income from Discharge of Indebtedness (Cancellation of Debt: C.O.D)
Generally, all debts canceled are included in gross income (other income.)
Business loan - Schedule C

5) Income in Respect of a Decedent
IRD is gross income that the decedent earned before death was not includible on the decedent's income tax return.

6) Jury Duty Pay