Taxable Gross Income Defined (Part 2)

Dividend Income – there are 3 categories of dividends.
1. Taxable Dividends – the tax rate for most taxpayers is 15%. For low income taxpayers (those in the 10% or 15% income tax bracket), the tax rate is 5%
2. Tax-free distributions – the following items are exempt from gross income

  • Return of capital – when a company distributes funds but has no earnings or made no profit. The taxpayer in this case will adjust his/her basis in the stock, but not below zero.
  • Stock Split – the stockholder will allocate the original basis over the total number of shares held after the split.
  • Stock Dividend – if the stock is the same stock, the original basis is divided by total shares. If the stock is different, the original basis is allocated based on their cumulative FMVs.

Payments pursuant to a divorce

  • Alimony/spousal support (income) – is considered income to the receiving spouse and is deductible to arrive at AGI for the contributing spouse.
  • Child Support – is non taxable to receiving spouse and is¬†deductible to arrive at AGI for the contributing spouse
  • Property settlements are non taxable

For next blog, we’re going to look at some business income or loss, as reported on schedule C or Schedule C-EZ.

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