Pursuant to Internal Revenue Code (IRC) §103, the Regulations thereunder and long-standing principles dating back 100 years1, interest on state and local (so-called municipal bonds) is excludable from gross income.
Child support is neither deductible by the payor nor is inclusion required by the payee (See IRC §71(c)(2)).
Pursuant to IRC §102, gifts are not included in gross income.
The flush language of IRC §104(a)(2) is as follows:
“[gross income does not include] the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness…”2
Thus, the $90,000 is, as we stated in class, clearly excludable. Yet, for some reason, several returns included the $90,000.
Lottery winnings are included in gross income (Exhibit 16.1). If the taxpayer has substantiation, losses can be claimed to the extent of gains. The Deans have no substantiation as to their losses.
A Federal income tax refund is a return of a nondeductible expenditure and is, therefore, nontaxable. (see Chapter 16)
A contribution to a traditional IRA is a deduction for AGI. (see Chapter 16)
Because their itemized deductions clearly exceed $11,400, the standard deduction is not an advisable option. (see Chapter 16)
Life insurance premiums, traffic fines, political contributions, and funeral