What is Gross Income for Filing Requirements?

[dyne]

We all know that gross income used to determine if tax returns are required to be
filed include:
Gross rents
Gross Schedule D sales
Gross receipts from a business or farm
and other items of income.

Only the TAXABLE portion of Social Security Benefits are considered to be
Gross Income for this purpose.

What about retirement income or pensions, etc?. After reflection upon the issue,
I have concluded that the GROSS amount, NOT the taxable portion is considered
gross income.

I just had a client which I can use as an example: Imagine a single person who
received $30,000 gross retirement but for some reason NONE of it was taxable.
The $30,000 would be included as gross income requiring him to file tax returns.
Does anyone disagree?

[RitaB]

I agree

I agree with that, dyne. Just because the 1099-R says something, IRS doesn't know what is correct until the return is filed. (See the discussions regarding codes in Box 7.)

A person with $30,000 gross on Sch C and $31,000 in expenses would have to file for this reason as well. IRS doesn't know what happened until it is explained on the return. (I would suggest the person find another line of work, too.)

Wow, we are gods, aren't we?

[gkaiseril]

Since not all payors of retirement funds know the taxable amount many are leaving it blank and the taxpreparer and taxpayer need to figure the taxable amount. But the IRS does know the gross amount and uses that.

From page 6 of IRS Pub 17:

"Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you may exclude part or all of it). Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time during 2009 or (b) one-half of your social security benefits plus your other gross income and any tax- exempt interest is more than $25,000 ($32,000 if married filing jointly). If (a) or (b) applies, see the instructions for Form 1040 or 1040A or Publication 915 to figure the taxable part of social security benefits you must include in gross income"

[dyne]

Thank you gkaiseril: I was NOT aware that the social security benefits for a married taxpayer who filed a separate return and lived with the spouse at any time during the year is included in the DEFINITION of gross income.
I know 85% of the gross amount is taxable. I encountered this several years ago when an older husband deserted his wife during the year and moved to Florida. He called from Florida to have me prepare his return and I advised him that ALL of his social security benefits would be taxable. I had difficulty in wording this, so please excuse. It is simple but hard to explain.

[dtlee]

I also disagree with the Gross Receipts item. I believe that Gross Income includes Gross Income from a business (as opposed to Gross Receipts or Net Income). (See TTB, page 18, column 2)

[gkaiseril]

One would think this would be simple, but like all taxes there are a number of exceptions. It is more important to read the notes than the big table listing the requirements. The exceptions for dependents and self employed individuals always confuse people. And since there are few MFS filers with SSA benefits we tend to forget that MFS filers get 85% of their benefits taxed from dollar 1.

For Schedule C, D, and E the instructions are ambiguous by using the generic term 'income' for gross receipts, so here is a place where people need to be real careful. I always use gross receipts before any adjustments. It is better to document there is no tax due at the end of the year than to have to fight it after the fact when the taxpayer brings in the notice of deficiency.

[ChEAr$]

I also disagree with the Gross Receipts item. I believe that Gross Income includes Gross Income from a business (as opposed to Gross Receipts or Net Income). (See TTB, page 18, column 2)

Neither really; not gross receipts, nor net profits, but gross profit as defined after cost of
good sold.

However as a practical matter, should schedule c gross income include a high amounts of 1099 misc figures,
you sure would want to file a return regardless. (irregardless?)

[dyne]

Doug: I think we agree. But the terminology is difficult to state.
WHAT page was that in THETAXBOOK?

[New York Enrolled Agent]

We all know that gross income used to determine if tax returns are required to be
filed include:

Gross Schedule D sales

The trigger to file a tax return is gross income. The gross proceeds from Schedule D sales are NOT gross income. §61 specifcally says gross income includes gains from dealings in property.

The Service addresses this in SCA 200018051 and concludes gross income and not gross proceeds is determinative in the requirement to file a return.

Having said this, it is probably advisable to file the return to avoid IRS correspondence.

[Gene V]

I have clients who only have SS income and a little interest income; however, they have capital loss carryover, should I keep filing a return in order to keep carrying the loss forward? Otherwise, they would be under the gross income test.

[dyne]

I have a similar problem with a client but who instead has a Contribution carryover
of about $15,000. Normally I would advise him that he is not required to file tax returns
but the only way he can know how much contribution carryover he will have each
year is for me to prepare returns NOT to be filed to determine his carryover. I am not sure
what he will do.