1. What is Income? The Internal Revenue Code defines income as…
“all income from whatever source derived”
Determining what IS and what ISN’T income

2. Examples of Income Compensation for services
Fees, commissions, fringe benefits, and similar items
Gross income derived from business
Interest
Dividends
Prizes and awards
Prizes and awards with the exemption of Scholarships

3. Compensation for Services
On your W-2, Compensation is included in the first box “Wages, tips, other compensation”
However, what if - instead of paying you in money - your company paid you in clothes?

4. Compensation for Services
Instead of getting a check for $300, you are given $300 worth of clothes.
Is that income?
YES, $300 worth of income
Whether your services are paid for in money, property, or other services, you have received income.
What if you were paid for in property and when you were paid the land was worth $4000. But when you had to file the land appreciated to $10,000. How much income would this be? (4000)

5. Compensation for Services
Let’s say you were given two $100 Bronco tickets because you did such a good job.
Compensation income includes the value of any property received in exchange for the performance of services.
These tickets would be considered a Fringe Benefit. (an extra benefit supplementing an employee’s salary)
Is this income? YES!!! Your boss gave you the tickets because you did SUCH A GOOD JOB. Therefore the tickets are compensation for your services. YOU CAN BE TAXED ON THE TICKETS!!!
Fringe benefit: EXAMPLES
Company car, meals, health insurance, etc…
HOWEVER, YOUR EMPLOYER IS REQUIRED TO INCLUDE THE VALUE OF THOSE TICKETS IN YOUR INCOME ON YOUR W-2.

6. Interest and Dividends
Interest: The money that banks pay depositors for the use of their money.
Dividends: A portion of an organization’s profits.

7. Interest Interest you earn from a bank account is taxable.
Let’s say you put in $4,000 into your savings account.
Your savings account earns 2% interest.
By the end of the year you have $4,080
This means you will be taxed on the $80 you made from interest.
If your interest is over $1,500, then you have to fill out Schedule B.

8. Interest
You do not have to do any math to come up with this number ($80).
The bank will give you a 1099-INT form in January which will show you how much TOTAL INTEREST you made.

9. Dividends Let’s say you bought Disney stock this year.
Throughout the year Disney gave you dividends (part of its earnings and profits), which added up to $77.
The $77 in dividends you received is listed on the DIV form.
You are taxed on that $77.

10. Exclusions From Income
Exclusions: You don’t have to pay taxes on…
Gifts
Inheritances
Scholarships
De Minimis Fringe Benefits
De minimis FB: Sometimes you receive benefits from employers SO SMALL that it is unreasonable to keep track of these amounts.
Example: Using the photocopier at work for 5 copies for personal reasons.
Example: The free use of the company coffee machine or use of company telephones to make personal calls.

11. Gifts
Definition:
A “Gift” is made if the dominant reason for the transfer was out of affection, respect, admirations, charity, or like impulses.
Going back…The main reason you received the Bronco tickets was because you had done a good job. Therefore they were not considered a gift.
Example: a tip is NOT a gift. It’s a certain amount given to you because of your services

12. Inheritances
Money or property received from someone who has died is usually an Inheritance.
These are excluded (Not included) from your income.

13. Inheritance example Your long-lost uncle dies and leaves you $1,000.
That money is an inheritance, therefore you DO NOT have to report this when filing your tax return.

14. Inheritance Exception
The only real exception with an inheritance is when it is used to compensate the recipient for his or her services.
Example: You performed yard work for your long-lost uncle who never paid you.
In his will, he leaves you $1,000, specifically indicating that the payment is for the yard work.
This would make it a compensation for services rather than an inheritance.

15. TAX AND CREDITS
Standard Deduction
Itemized Deductions
Credits

16. Standard Deductions It is a base amount of income that is not taxed.
You either Itemized OR use Standard deduction.
The standard deduction for a single person is $5,350.
The Standard Deduction is the EASIEST to use.

17. Itemized Deductions
Itemized Deductions: to make a list of certain personal expenses that the IRS allows as a reduction of taxable income.
They are any expenses that allow you to reduce your taxable income.

18. Itemized Deductions Example: GIFTS TO CHARITY
You may deduct contributions or gifts you made to religious, educational, scientific, charitable, literary, or war veterans’ organization.

19. Itemized Deductions: Gifts to Charity
The general rule is that deductions for charitable contributions are allowed if the contribution was voluntary and it was your intent to donate.
Meaning that you didn’t expect anything in return.

20. Itemized Deductions: Job Expenses
Travel
Uniforms
Education

21. Itemized Deductions: Travel
Can you write off these miles as a job expense?
General rule: going to and from work expenses are NOT deductible.
Other travel related expenses related to your job are deductible.
Example: You’re required to attend a two-day “leadership conference.” Your expenses might include the cost to travel, a hotel room, and meals.
As long as it’s necessarily related to your job, they are deductible travel expenses.

22. Itemized Deductions: Uniforms
The cost of buying clothes (uniforms) for your job is deductible only if the clothes are NOT adaptable to general use as ordinary clothing.
This means…If the clothes you bought could be worn as “everyday” regular clothing, you can’t deduct the cost.

23. Itemized Deductions: Education
Education costs are deductible as a job expense if…
1) They maintain or improve your skills OR
2) They meet the express requirements of your employer, the law, or are a condition of keeping your job.
For example: KMART requires you to take a management class so that you’ll be better prepared to handle a promotion to a management position.
This class therefore, IMPROVES YOUR SKILLS and meets your employer’s requirements.

24. Itemized Deductions: Education
Nondeductible education expense:
1) the minimum education requirements that qualify you for employment. OR
2) Education that qualifies you for a new trade or business.
For my teaching licensure, I will not be refunded because this is the MINIMUM education I must receive.
I’m a teacher now, but I if I want to go back to school to become a lawyer, I can’t deduct these expenses because this education is a for a new trade or business.