European Stars and Stripes (Newspaper) - January 22, 1992, Darmstadt, Hesse                                It Mancial alarm Login to certain times the nuts and bolts of taxable income by Jim Luther a tax writer More to Ian ?0 percent of the income reported by couples and individuals is from wages and salaries a clearly taxable. Most of taxpayers problems arise from that other .10 percent. Is a Bonus taxable what Are capital gains is it Reash income if i Swap my Auto repair skills for painting does the government get a piece of my social Security pension what if i hit the lottery do i pay tax on the proceeds of a life insurance policy when a relative Dies the general Rule is simple enough All income is taxable unless specifically exempted by Law or regulation. But who has time to read All those Laws and regulations there Are guidelines that cover the great majority of incomes. Some examples social Security. Up to half your benefits May be taxable if your income a including Hall your social Security a exceeds $25,000 single or $ 12,000 married filing a joint return. Capital gains. These Are profits from the Sale of investments and personal property which can be anything from a vacant lot to a share of Stock to an antique guitar. In general All such gains Are taxable although special rules exclude or defer taxation on some of the profit from the Sale of a Home under certain conditions. If you sell investment property at a loss you generally May deduct the loss from your capital gains and if any loss is left Over up to $3,000 from wages and other income. No capital loss deduction is allowed on the Sale of non investment property including your principal Home. Bartering. The irs wants a Cut if you Trade goods or services for others. If you were a member of a formal barter Exchange you a and the irs a should receive a form 1099-b noting the value of barter income you received last year. Gambling. Cash or other prizes from gambling including a state lottery must be reported As income. If you itemize you May deduct losses up to the amount of winnings a but Only after reporting the winnings As income. Employer payments. For civilians vacation pay bonuses Severance pay and moving expenses paid by an employer Are taxable. Also taxable is the value of a club membership or company car provided by the employer for personal use. Tax refunds. Report As income the refund of any state and local taxes that you deducted in a prior year. Life insurance. As a Rule a life insurance payout on tin death of the insured person is not taxable although estate taxes May apply. Scholarships. In general the portion of editor George a amp nes design Susan Harris Peter Jaeger production Gunther Schroder tax obligations for the military for the tax year 1990 because certain military payments Are not taxable service members Are sometimes confused As to what is and in t taxed. Active duty pay Reserve training pay re enlistment bonuses service Academy pay amounts received by retired personnel serving As instructors in Junior Roth programs Lump sum payments upon separation or release to inactive duty military retirement pay based on age or length of service imminent danger duty pay enlisted foreign duty pay i family separation pay for More information obtain internal Revenue service pub. 3, tax information for military  item Basic quarters allowance variable housing allowance i Basic subsistence allowance i uniform allowance i family separation pay i other quarters Cost of living allowances i moving and storage expenses provided in kind or reimbursements for actual expenses for permanent change of station moves i benefits under servicemen s group life insurance i death gratuity pay not More than $3,000 i forfeited pay but not fines i certain disability retirement pensions department of veterans affairs benefits including a insurance dividends i enlisted combat pay and warrant officers i officers combat pay 1st $500 exempt scholarship granted after aug. 16, 1986, to a degree candidate and earmarked for tuition and supplies is tax free. Grants for room and Board Are taxable. Tips. All tips Are taxable. If you work for a larger restaurant and reported to your employer tips of less than 8 percent of your sales you May have to pay tax on a higher amount. Irs publication 531 spells out the rules on tips. Illegal income. Income from bribes kickbacks drugs and other illegal activities is taxable. Also taxable Alimony received punitive damages except those that compensate for sickness or injury income from hobbies although you May be Able to deduct some associated costs most interest including that on tax refunds self employment income rents received and pensions. Making sense of the tax bracket by the associated press americans must be the trusting Type. What else accounts for the fact that most pay their Federal income taxes without knowing How the system works what does it mean if a Friend says he is in the 31 percent tax bracket what s the difference in taxable income and adjusted Gross income Are credits and deductions the same whal is a marginal tax rate Here Are some answers total income is everything you made last year whether from your labor or your investment. Gross income is anything that is subject to lax unless specifically exempted. Subtract from Gross income such items As Alimony paid and contributions to individual retirement accounts and you get adjusted Gross income a Agi it is called. Agi minus your deductions and exemptions leaves taxable income a whal is actually subject to tax. While a deduction whether itemized or the Standard deduction reduces the amount of income subject to taxation a tax credit is subtracted directly from taxes owed. Thus a c Redit is far More valuable than a deduction of the same Sie. And what about Quot marginal tax Rale Quot thai is the rate that applies to the last Dollar you earned 1 his used to be More important when there were 1 5 or 16 brackets. Now there Are three 1 5 percent which is the Only rate most of us pay 28 percent and 31 percent. An example if you Are single and your taxable income a remember that s after you subtract deductions and your personal exemption a is less than $20,351, you pay a tax rate of 15 percent. Or if you Are a couple filing a joint return your taxable income can be As High As $34,000 and you still would pay Only 15 percent. But what if you Are single and you had $28,000 in taxable income last year the first $20,350 is taxed at 15 percent the remaining $7,650 is taxed at 28 percent. That gives you a tax liability of $5,202. If in addition to your $28,000 taxable income you had received a $2,000 raise or won $2,000 in a lottery last year you would have remained in the 28 percent tax bracket. The additional Money would not have been enough to push you into the higher bracket. But if you had really hit it big a a $50,000 lottery for example a your taxable income would have jumped to $78,000. The first $20,350 still would have been taxed at 1 5 percent and the next $28,950 at 28 percent. The remaining $38,700 would be subject to a rate of 31 percent. That would result in a total tax Bill of $20,055.50. In the first example the single person with $28,000 taxable income paid $5,202 in tax Whit a when divided by taxable income results in an effective tax rate of 18.6 percent. After winning the $50,000 lottery the effective rate jumped to 25.7 percent. 2 a the stars and stripes tax guide wednesday january 22, 1992