About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
1 4 1 Gross Income Inclusions and Exclusions Explained

4 1 Gross Income Inclusions and Exclusions Explained

Key Concepts

Gross Income Inclusions

Gross income inclusions refer to all income from whatever source derived, unless specifically excluded by law. This includes wages, salaries, tips, interest, dividends, business income, and capital gains. Essentially, any form of income that is not explicitly excluded is included in gross income.

Example: An individual earns a salary of $75,000, receives $5,000 in dividends from stocks, and sells a piece of property for a $10,000 gain. The total gross income inclusions are $75,000 (salary) + $5,000 (dividends) + $10,000 (capital gain) = $90,000.

Gross Income Exclusions

Gross income exclusions are specific types of income that are not included in gross income for tax purposes. These exclusions are provided by the Internal Revenue Code and include items such as gifts, inheritances, certain scholarships, and life insurance proceeds. These items are not subject to federal income tax.

Example: A student receives a $10,000 scholarship for tuition and books. This amount is excluded from gross income because it is used for qualified educational expenses. Another example is a $500,000 life insurance payout received after the death of a family member. This amount is also excluded from gross income.

Taxable vs. Non-Taxable Income

Taxable income is the portion of gross income that is subject to tax after deductions and exemptions. Non-taxable income, on the other hand, is income that is not subject to tax and includes items that are specifically excluded from gross income.

Example: A taxpayer has gross income of $100,000, including $5,000 in interest from municipal bonds. The interest from municipal bonds is non-taxable, so the taxable income is $100,000 - $5,000 = $95,000.

Examples and Analogies

Consider gross income inclusions as the "total earnings" from all sources, similar to the total amount of money in a bank account. Gross income exclusions are like "deductions" from that total, akin to removing certain amounts from the bank account that are not subject to tax. Taxable income is the "net balance" after these deductions, representing the amount subject to tax.

Another analogy is a shopping list where gross income inclusions are all the items on the list, gross income exclusions are the items crossed off the list, and taxable income is the remaining items that need to be purchased.

© 2024 Ahmed Baheeg Khorshid. All rights reserved.