Part Two -   Income

The eight chapters in this part discuss many kinds of income. They explain
which income is and is not taxed. See Part Three for information on gains
and losses you report on Schedule D (Form 1040) and for information on
selling your home.

Table of Contents

    * 5.   Wages, Salaries, and Other Earnings
          o What's New
          o Reminder
          o Introduction
          o Useful Items - You may want to see:
          o Employee Compensation
                + Baby-sitting.
                + Miscellaneous Compensation
                + Fringe Benefits
                + Retirement Plan Contributions
                + Stock Options
                + Restricted Property
          o Special Rules for Certain Employees
                + Clergy
                + Members of Religious Orders
                + Foreign Employer
                + Military
                + Volunteers
          o Sickness and Injury Benefits
                + Disability Pensions
                + Long-Term Care Insurance Contracts
                + Workers' Compensation
                + Other Sickness and Injury Benefits
    * 6.   Tip Income
          o Introduction
          o Useful Items - You may want to see:
          o Keeping a Daily Tip Record
                + Electronic tip record.
          o Reporting Tips to Your Employer
                + Electronic tip statement.
                + Final report.
                + Tip Rate Determination and Education Program
          o Reporting Tips on Your Tax Return
          o Allocated Tips
    * 7.   Interest Income
          o Reminder
          o Introduction
          o Useful Items - You may want to see:
          o General Information
                + SSN for joint account.
                + Custodian account for your child.
                + Penalty for failure to supply SSN.
                + Reporting backup withholding.
                + Savings account with parent as trustee.
                + Interest not reported on Form 1099-INT.
                + Nominees.
                + Incorrect amount.
                + Information-reporting requirement.
          o Taxable Interest
                + Interest subject to penalty for early withdrawal.
                + Money borrowed to invest in certificate of deposit.
                + U.S. Savings Bonds
                + Education Savings Bond Program
                + U.S. Treasury Bills, Notes, and Bonds
                + Bonds Sold Between Interest Dates
                + Insurance
                + State or Local Government Obligations
                + Original Issue Discount (OID)
          o When To Report Interest Income
                + Constructive receipt.
          o How To Report Interest Income
                + Schedule B.
                + U.S. savings bond interest previously reported.
    * 8.   Dividends and Other Corporate Distributions
          o Reminder
          o Introduction
          o Useful Items - You may want to see:
          o General Information
                + Dividends not reported on Form 1099-DIV.
                + Reporting tax withheld.
                + Nominees.
          o Ordinary Dividends
                + Qualified Dividends
                + Dividends Used to Buy More Stock
                + Money Market Funds
          o Capital Gain Distributions
                + Basis adjustment.
          o Nondividend Distributions
                + Liquidating Distributions
                + Distributions of Stock and Stock Rights
          o Other Distributions
                + Information reporting requirement.
                + Alternative minimum tax treatment.
          o How To Report Dividend Income
                + Investment interest deducted.
    * 9.   Rental Income and Expenses
          o Introduction
          o Useful Items - You may want to see:
          o Rental Income
          o Rental Expenses
                + Repairs and Improvements
                + Other Expenses
          o Not Rented for Profit
          o Property Changed to Rental Use
          o Renting Part of Property
          o Personal Use of Dwelling Unit (Including Vacation Home)
                + Dwelling Unit Used as Home
                + Figuring Days of Personal Use
                + How To Divide Expenses
                + How To Figure Rental Income and Deductions
          o Depreciation
                + Changing your accounting method to deduct unclaimed
depreciation.
                + Other Rules About Depreciable Property
          o Limits on Rental Losses
                + At-Risk Rules
                + Passive Activity Limits
          o How To Report Rental Income and Expenses
                + Schedule E (Form 1040)
    * 10.   Retirement Plans, Pensions, and Annuities
          o What's New
          o Introduction
                + The General Rule.
                + Civil service retirement benefits.
                + Individual retirement arrangements (IRAs).
          o Useful Items - You may want to see:
          o General Information
                + Tax-free exchange.
                + How To Report
          o Cost (Investment in the Contract)
          o Taxation of Periodic Payments
                + Simplified Method
          o Taxation of Nonperiodic Payments
                + Lump-Sum Distributions
          o Rollovers
          o Special Additional Taxes
                + Tax on Early Distributions
                + Tax on Excess Accumulations
          o Survivors
    * 11.   Social Security and Equivalent Railroad Retirement Benefits
          o Introduction
          o Useful Items - You may want to see:
          o Are Any of Your Benefits Taxable?
          o How To Report Your Benefits
                + How Much Is Taxable?
          o Examples
          o Deductions Related to Your Benefits
                + Repayments More Than Gross Benefits
    * 12.   Other Income
          o What's New
          o Introduction
          o Useful Items - You may want to see:
          o Bartering
          o Canceled Debts
                + Interest included in canceled debt.
                + Exceptions
          o Host or Hostess
          o Life Insurance Proceeds
                + Surviving spouse.
                + More information.
                + Endowment Contract Proceeds
                + Accelerated Death Benefits
                + Public Safety Officer Killed in the Line of Duty
          o Partnership Income
          o S Corporation Income
          o Recoveries
                + Itemized Deduction Recoveries
          o Rents from Personal Property
          o Repayments
                + Method 1.
                + Method 2.
          o Royalties
                + Depletion.
                + Coal and iron ore.
                + Sale of property interest.
                + Part of future production sold.
          o Unemployment Benefits
                + Types of unemployment compensation.
                + Governmental program.
                + Repayment of unemployment compensation.
                + Tax withholding.
                + Supplemental unemployment benefits.
                + Repayment of benefits.
          o Welfare and Other Public Assistance Benefits
                + Alternative trade adjustment assistance (ATAA) payments.
          o Other Income
                + Emotional distress.
                + Deduction for costs involved in unlawful discrimination
suits.
                + Energy conservation measure.
                + Dwelling unit.
                + Current income required to be distributed.
                + Current income not required to be distributed.
                + How to report.
                + Losses.
                + Grantor trust.
                + Nonemployee compensation.
                + Corporate director.
                + Personal representatives.
                + Notary public.
                + Election precinct official.
                + Difficulty-of-care payments.
                + Maintaining space in home.
                + Reporting taxable payments.
                + Lotteries and raffles.
                + Form W-2G.
                + Inherited pension or IRA.
                + Employee awards or bonuses.
                + Pulitzer, Nobel, and similar prizes.
                + Payment for services.
                + VA payments.
                + Prizes.
                + Strike and lockout benefits.