As you know, I’m blogging about taxes to jog my memory for the up coming tax season. In today’s blog, we’re going to learn about gross income.
Unless it is specifically excluded, gross income is money received or earned from any sources. As a general rule, income is determined by the amount of cash, fair market value of property, or services received.
Additionally, in order to be taxable income, the money must be both recognized and realized. Let’s say you own a Google stock. You bought it for $550. Today it’s $650. There’s no realized gain here because the stock has not changed hands. So, you do not have to recognize this gain on your tax return.
I’m going to go through some specific items of income and exclusions
Salary – all forms of compensation for services
- Cancellation of Debt – is included in gross income.
- Bargain purchases – if your employer sells property to you for less than its fair market value (FMV), the difference is income to you.
- Taxable Fringe Benefits – Personal use of a company’s car is considered income. Life insurance premiums above the first $50K of coverage are also taxable income. Employer payment of employee’s educational expenses in excess of $5,250 is also taxable income.
Taxable Interest – as a general rule, all interest is taxable.
The exception is, interest on state and local bonds/obligations is tax exempt. Some mutual fund dividends in tax-free bonds are also tax exempt.
The “Kiddie Tax” – Unearned Income of a child under 18
Net unearned income of a dependent child under 18 is taxed at his parent’s higher tax rate. For more details, contact me.
I will continue to write more about gross income in future blogs.
- ‘Tis the Tax Season – Let’s learn the basic tax formula (financeexpressonline.com)
- When Does a Senior Citizen on Social Security Stop Filing Taxes? (turbotax.intuit.com)
- What Are Estate Taxes? (turbotax.intuit.com)
- Income Tax Filing Requirements (turbotax.intuit.com)