Chapter 14. Fundamental Tax Concepts
Tax planning is a difficult, time‐consuming activity at best. After reading this book, you have gathered a great deal of information about effective tax planning. To assist you with that task, this chapter provides helpful definitions and illustrations of key tax terms and concepts. These items, which are really a combination of glossary, encyclopedia, and frequently asked questions, constitute an essential reference source for you.
Earlier chapters described actions you may take at the end of the year to reduce your tax bill. Near the conclusion of this chapter, a checklist of valuable suggestions offers steps you can take in January as part of your tax minimization program.
The Tax Code casts a very broad net in defining gross income—it consists of basically every type of income you receive, unless Congress has provided a specific exemption excluding that item from gross income.
Common examples of items included in gross income are wages and bonuses, taxable interest, dividends, state tax refunds, alimony, business income, capital gains, traditional individual retirement account (IRA) distributions, taxable pensions and annuities, rent, partnership and S corporation income, unemployment compensation, and taxable Social Security benefits.
There are some items that are specifically excluded from gross income and are therefore not subject to tax. These include, for example, certain death benefits on life insurance policies, gifts and inheritances ...