Income from investments, including dividends, interest, royalties and capital gains. There are three main categories of income: active income, passive income and portfolio income. These categories of income are important because losses in passive income generally cannot be offset against active or portfolio income.
1. The gradual reduction of a tax credit as a taxpayer approaches the income limit to qualify for that credit. 2. The gradual reduction of a taxpayer's eligibility to contribute to a tax-advantaged retirement account as the taxpayer approaches an income limit. 1. For example, the federal Child Tax Credit begins to phase out for married taxpayers filing jointly when their modified adjusted gross income (MAGI) reaches $110,000. If their MAGI falls below this number, they can claim the full credit. If it falls above this number, the credit is gradually reduced until the income limit is reached. Above that limit, the taxpayer cannot claim the Child Tax Credit. 2. In 2009, single taxpayers whose MAGI was more than $55,000 could not fully deduct contributions to a traditional IRA from their taxes. This tax credit phased out for MAGI between $55,000 and $65,000, meaning that contributions were only partly deductible. Single taxpayers with MAGI above $65,000 could not deduct their traditional IRA contributions from their taxes at all.
Income paid to a taxpayer during the tax year that is not constructively received at the taxpayer's end. Phantom income is not terribly common, but does manifest itself in such investments as limited partnerships, where the earnings are taxed but not received, and zero-coupon bonds, which are issued at a discount and mature at par. The interest payments for zeros are credited to the taxpayer but no check is actually cut for them. The bondholder effectively receives the payments at maturity, when the bond is redeemed at the higher par value. Loan forgiveness is another form of Phantom Income. The creditor essentially "pays" the delinquent borrower the amount of debt forgiven, which is why creditors send Form 1099-C to the borrow showing the amount of "income" that he or she received as forgiven debt. For obvious reasons, Phantom Income is something most taxpayers generally tend to eschew if at all possible. Unfortunately, Phantom Income is unavoidable in some cases.
The point in time when an asset that can be depreciated is first placed in use. The date the asset is placed in service marks the beginning of the depreciation period. The date of purchase usually marks when an asset is placed in service, but not always. Owners of depreciable assets should take note of the date that their depreciable assets are first placed in service, because they must record that date on their tax returns for depreciation calculations. The receipt for the good will effectively double as both proof of purchase and proof of date placed in service for the IRS in the event of an audit.
A notion that an investment firm that passes all capital gains, interest and dividends on to its customers/shareholders shouldn't be levied at the corporate level like most regular companies are. Also referred to as "conduit theory". According to pipeline theory, the investment firm passes income directly to the investors, who are then taxed as individuals. This means that investors are taxed once on the income, whereas in regular companies investors are taxed twice: when the company reports income (at the corporate level) and when dividends are received (as individual income). Pipeline theory would apply to mutual fund companies and real estate investment trusts (REITs).
Similar to the bona fide foreign residence test, the physical-presence test allows taxpayers to claim the foreign earned income exclusion. The test mandates that a taxpayer must be physically present in a foreign country for at least 330 full days out of the year in order to claim the exclusion. The days do not have to be consecutive and the test applies both to U.S. citizens and resident aliens. The reason for being abroad is irrelevant to this test. However, a family emergency, illness or employer directive is not a sufficient reason to allow for the exclusion if it causes the taxpayer to be present in a foreign country for less than the required 330 days. Furthermore, a "day" is considered a full 24-hour period, so days of arrival and departure in a foreign country do not count toward the required time.
The primary location that a person inhabits. It doesn't matter whether it is a house, apartment, trailer or boat, as long as it is where you live most of the time. You can usually avoid capital gains on the sale of your principal residence, provided you buy another place of equal or greater value that is going to become your new residence.
A phrase denoting that the main intent of traveling out of town was to transact business. This trip may be combined with pleasure, but the primary purpose of the trip must be for business. If the business element of the trip were removed, the trip would not be taken. As long as the primary business purpose can be proven, the taxpayer may deduct all transportation and lodging costs, as well as 50% of meal expenses. This can be done even though part of the trip is for pleasure. However, if the main purpose of the trip is pleasure, then no expenses of any kind are deductible. Generally, the amount of time spent pursuing business versus pleasure activities is the determining factor in establishing primary business purpose. Keeping a log to document business activities is usually acceptable proof of business purpose in the event of an audit by the IRS.
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