Gross Income: Exclusions, Free Essay on Taxation

In the salaries and other types of financial incomes a person gets, they are accompanied by a sizeable amount of tax as stipulated in the law. Specific exclusions have been made to prevent taxation of certain earnings. This paper seeks to create a summary of chapter five of the book Individual Income Taxes pointing out some of the items excluded from gross incomes.

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The statutory authority, in the sections 101 to 150 has the ultimate power for exemption of specific items from the gross income due to various reasons such as prevention of double taxations (231). According to this authority, the first items that are excluded from taxes are gifts and inheritances. The 1913 Income Tax Act allowed for the value of any awards received to be excluded from the gross income, either when donors are alive or dead (232). Ambiguity has been removed, and any property or money given to the employee by an employer is not regarded as a gift. If the employer pays salaries to beneficiaries of a deceased employee, it is taxable, but if the employer pays willingly, then it is considered to be a gift to them (233).

The second item exempted from taxation is the life insured proceeds. Here, the general rule states that any proceeds that arise from the insured person's death are not included in the income tax (233). These include where a person had canceled a life insurance policy and collected the surrender value by being either terminally or chronically ill (234). Clarity is made that once a life insurance policy is transferred due to value considerations; the proceeds will be included in the gross income of the transferee (235).

Scholarships are exempted from the gross income only if the money is spent on tuition and other related expenses such as books (236).

Compensatory damages are exempted from gross income only if accounted for personal physical injury of sickness (238). Among other payments exempted from gross income includes payment for wrongful; incarceration of workers, worker's compensation for future loss of income and benefits related to health and accident insurance (239).

The next types of payments exempted from the gross income include accidents and health plans sponsored by the employers. These take the form of subsidies for medical care of employee and their families, medical reimbursement plans through insurance coverage (240). The long-term insurance care insurance benefits are also exempted from gross income (241).

When an employer provides meals and lodging to an employee, these are excluded from the gross income (242).

Other benefits given to the employees apart from the salaries and wages are also not included in the gross income (244). They include unique benefits, treatments in cafeterias, and other plans of flexible spending like transportation and working condition fringes (247).

According to the 16th Amendment, interest from some local government and state obligations were also exempted from being taxed. In the field of business, and corporate distributions that surpass the earnings and profits of the shareholders are not taxed (252).

Due to the rise in education costs, the educational savings bond has also been exempted from being taxed (253). For families to help in educating their siblings, the government has also scraped taxes on qualified tuition programs for fees and books, and the savings account on Coverdell education (255).

Other finances exempted from being taxed include the qualified, able programs for the blind before attaining 26, the tax benefits rule for people incurring a cost but getting a refund (255) and the incomes that arise from indebtedness after one is relieved of debt (256).

Among some tax planning opportunities that are excluded include life insurance, employee fringe benefits and the incomes from investments (257-258).

In conclusion, the laws and acts on the process of taxing are essential in stating clear the method of taxing citizens as well as spelling out clearly which areas should and should not be taxed.

Work cited

Hoffman, William H., et al. South-Western federal taxation: 2018 edition: individual income taxes. Cengage Learning, 2018.