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Accounting Methods: Cash, Accrual, and Hybrid. IRC §446 (b) gives the IRS broad authority to determine whether the accounting method used by the taxpayer clearly reflects income. If not, then the IRS can calculate taxes for a taxpayer under an accounting method that the IRS deems to be more accurate.
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Income and Permitted Deductions. Under Sec. 61(a), all income from whatever source derived is includible in a U.S. resident's gross income. Whether the gambling winnings are $5 or $500,000, all amounts are taxable. A taxpayer may deduct losses from wagering transactions to the extent of gains from those transactions under Sec. 165(d).
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Tax Treatment of Annuity Payouts. Once you select your payout method, you should ask for your exclusion ratio, which tells you how much is excluded from being taxed. If your exclusion ratio is 80% on a $1,000 monthly payout, then $800 is excluded from income tax and $200 is subject to taxation.
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