Beruflich Dokumente
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Alan Davis
Consider the following examples designed to illustrate the point that you should study
the law and not problems.
General rule on income: All income is taxable unless something in the tax law says that
it is not.
General rule on deductions: Nothing is deductible unless some provision in the tax law
says that it is.
General rule on losses: The only losses that are deductible are for 1) Investment, )
!usiness, or ") #asualty.
Example #1$ !ill is in love and buys his girlfriend, %illary, an engagement ring at a cost
of &1''. (ater, she notices his roving eye and returns the ring to him and he sells it for
&)*. +hat is the tax result, -.egan and /huong)
0/ 1 )*, basis 1 1'' loss 1 2*3
The loss is not deductible because the only losses that are deductible are for investment,
business or casualty.
Example #2$ !ill is in love and buys his girlfriend, %illary, an engagement ring at a cost
of &1''. (ater, she notices his roving eye and returns the ring to him and he sells it for
&1'*. +hat is the tax result, -/huong and 4a5e)
The gain of &* is taxable because nothing says it6s not
HEAD ! H"#EH$D % The re7uirements are as follows$
1. The person must be unmarried.
. The person must a) provide at least half the cost of a household in which at
least one b) dependent c) relative lives. Note that in the case of a dependent
parent, the parent need not live with the taxpayer.
EXA&'$E #(: 4ustin is single, lives alone, and fully supports his mother who lives in a
nursing home. +hat is his filing status 8 head of household or single, -4a5e and 4ustin)
9es because the dependent who doesn6t live with the T/ is the parent.
EXA&'$E #): C*dne* is single, lives alone, and fully supports her sister who lives in a
nursing home. +hat is her filing status 8 head of household or single, -4ustin and
#ydney)
No because the dependent 8 the sister doesn6t live with the T/
1
+hat does 0ection :1 do, ;ross income is all income w< certain exceptions -doesn6t
include all the exceptions)
+hat does 0ection : do, (ist out all the deductions -A;I 1 ;I 8 certain deductions).
All three code sections contain lists 8 are the lists useful or not, The lists of 0ection :
and 0ection 11 are useful
Alimony is on both the 0ection :1 list and also on the 0ection : list.
If #ongress, in their wisdom, too5 alimony off the 0ection :1 list would it change the
law, No, still taxable unless something says it6s not.
If #ongress, in their wisdom, too5 alimony off the 0ection : list would it change the
law, 9es, it will become itemi=ed deductions.
+hat about 0ection 11,
#apital asset is all assets except for
> inventory
> depreciable property ? land used in trade<business
> artistic property held by artist A, letter produced for !, gift from A or !
> A@<N@
> #orporate bond is capital asset.
0o, are .egan6s shoes capital assets, 9es
Contrast with other jurisdictions > %ong Aong has a very narrow tax base and has "
taxes$
0alaries tax 8 tax on salaries
/rofits tax 8 tax on business profits
/roperty tax 8 tax on rental income
#olby paid 4acob, a college student who has no experience as a house painter, &1,''' to
paint his house 8 answer the following 7uestions -#olby and 4acob)
+ould this be subBect to tax under %A law, #olby is not an employee, he doesn6t have
the salaries so he6s not subBect to tax
+ould this be subBect to tax under C0 law 8 1) if the house is located in Air5sville 8 ) if
the house is located in %A but 4acob is a C0 citi=en, 1) 9es of course ) 9es because the
C0 tax its citi=en on worldwide income.
The %ong5ong laws says exactly what is taxable, the American law says exactly what is
not taxable.