Gross Income and exclusions
Annuity exclusion ratio
(original investment / Expected value of annuity) = Return of capital percentage every year a portion will be taxed as gross income (ordinary tax rates) And nontaxable return of capital (return on original investment)
Are athletic scholarship excludable?
Yes, expects but does not require students to participate in a sport
Wash sale rule
the unrecognized loss is added to the basis of the newly acquired stock
Difference between NQO's and ISO's
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Tax benefit rule
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What are the exceptions (gambling winnings)
1) made for scientific, literary or charitable achievement and transferred to a gov't unit or qualified charity Exception 2: if award given for length of service or safety achievement (disguised compensation)
Criteria for something to be included in gross income
1. economic benefit provided 2. Realization Principle Met 3. the tax law does not provide for exclusion or deferral
Requirements for alimony
1. transfer of cash made under written divorce decree 2. Not specify as not alimony 3. Do not live with each other 4. Payment ends with death Others that don't qualify(property divisions, child support)
How are employee discounts (bargain purchases) treated (imputed income)
20% of market value can be excluded from gross income
Gross Income is defined as
All income from whatever whatever source derived except whats excluded by law
How are relationship below market interest rate treated?
All of the market rate interest rate is considered interest expense/revenue The imputed interest is considered taxable compensation, dividend, or gift depending on interest
How to calculate expected value of annuity for annuities paid over lifetime
Annual payment * expected return multiple (tax table)
How are prizes, awards and gambling winnings treated
Are treated as gross income
Exclusions regarding homeownership
Gain on sale of personal residence is excluded up to 250,000 (500,000 married filed jointly) excess is considered long term capital gain taxed at preferential rates
Claim to right doctrine
Income is realized if there are no restrictions on the taxpayers use of income
Realization principle
Income is realized when 1) taxpayer engages in a transaction with another party and 2) transaction results in measurable change in property rights
How do you qualify for foreign earned
Live in foreign country for 330 days in consecutive 12 month period. Can be prorated
Foreign earned income
Maximum $97,600 of income can be excluded Maximum of 13,664 of employer provided foreign housing may be excluded
How are gifts and inheritance treated?
Not included in income by recipient, are subject to federal transfer tax to avoid double taxation
What happens if lives out expected returns
The entire amount will be included as gross income(ordinary rates)
How does everyone else treat Social Security benefits
a max 50% of benefits are taxed
How do high income treat Social Security benefits
a max of 85% of benefits are taxed
When does exclusion not apply for life insurance proceeds
a. transferred for valuable consideration b. cancels life insurance contract and receives proceeds in excess of previous premiums paid accelerated death benefits can be excluded to the extent of long term care if terminally ill or chronically ill
Capital losses
allowed to deduct up to 3000 of net capital loss against ordinary income does carry over
How does tax system treat alimony
as deductible FOR AGI by the person paying it is included as gross income by the person who receives it
Definition of tax basis
cost of an asset
Which disability insurance is excluded from gross income
employee purchased aka taxable compensation
How is life insurance treated
employees may exclude value of life insurance premium up to $50,000
Which Which disability insurance is included from gross income
employer paid, nontaxable fringe benefit
How do low income treat Social Security Benefits
exclude from gross income
Wash Sale
if an investor sells security at a loss either 30 days before or after the day of sale buys substantiall identical security in order to accelerate losses
Constructive receipt doctrine
income is constructively received when unconditionally available to the taxpayer knowledge and there are no restrictions on the taxpayers control over the income
What is the exception to imputed interest rule
loans less than $10,000
What's the difference between lump sum and timely payment life insurance
lump sum is not included in gross income (estate tax) if paid over time, a portion of payment is interest and is included in gross income
What are some other qualifying fringe benefits
medical, dental, and de minimis benefits
Short term and long term capital gains are taxed at what rate
short term is taxed at ordinary rates long term is taxed at preferential rates
What kind of worker's comp are excluded from gross income?
state sponsored workers compensation plan
2 reasons for exclusions
subsidize and thus encourage certain activities equity (avoid double taxation)
How is debt forgiveness treated?
taxpayer must include of of debt relief in gross income, NOT taxable up until the point of solvency
