ACC 317 - Chapter 5, 6, & 12
distance test
distance from old home to new job must at least be 50 miles farther than your old home was to your old job
personal property taxes
from AGI deduction
real estate taxes
from AGI deduction
standard deduction
from AGI deduction
state and local income or sales taxes (capped at $10,000)
from AGI deduction
if owner of life insurance policy cancels the policy and receives the cash surrender value
gain must be recognized to extent amount received exceeds premiums paid on policy loss is not recognized
accelerated death benefits
gain on cash surrender/transfer of policy by terminally or chronically ill individual is excludible (exclusion for chronically ill is limited to amounts used for long-term care)
tax treatment of damages received for loss of income
generally taxed the same as the income replaced exceptions exist related to personal injury
what does imputed interest apply to? (4)
gift loans compensation-related loans corporate-shareholder loans tax avoidance loans
life insurance policy transfers for valuable consideration
if policy is transferred for valuable consideration, proceeds are taxable to extent they exceed amount paid for policy + subsequent premiums paid
imputed interest on below-market loans
imputed interest = difference between the amount that would have been charged at the federal rate and the amount actually charged
gift loans of $100,000 or less between individuals
imputed interest is limited to borrower's net investment income for the year no imputed interest if net investment is 1,000 or less
two alternatives if time test isn't met
include amount deducted in gross income in following year or file amended return for year of move or wait until time test is met and file amended return for year of move
amounts received for medical expenses deducted on a prior return must be ________ in gross income
included
payments for expenses that do not meet the code's definition of medical care must be ________ in gross income
included
alimony received
included in gross income
annuities income element
included in gross income
awards
included in gross income
bonuses
included in gross income
death benefits
included in gross income
gambling winnings
included in gross income
group-term life insurance, premium paid by employer (over $50,000)
included in gross income
hobby income
included in gross income
interest
included in gross income
non-qualified moving expenses
included in gross income
prizes
included in gross income
punitive damages
included in gross income
rents
included in gross income
unemployment benefits
included in gross income
unemployment compensation
included in gross income
payments that are a substitute for salary are _______ in gross income
includible
inheritances are nontaxable to beneficiary if
income earned on gifts or inheritances is taxable under normal rules
A taxpayer who receives money when taking out a bank loan will include the amount borrowed in their gross income under the all-inclusive definition of income. T/F
F
Gambling winnings are excluded from gross income. T/F
F
Worker's compensation benefits received from a state-sponsored workers' compensation plan are taxable. T/F
F
Geoff purchased a life annuity for $4,800 that will provide him $100 monthly payments for as long as he lives. Based on IRS tables, Geoff's life expectancy is 240 months. How much of the first $100 payment will George include in his gross income? $ 100 $ 80 $ 48 $ 20 None of the choices are correct.
$ 80
Clyde is a cash-method taxpayer who reports on a calendar-year basis. This year Paylate Corporation has decided to pay Clyde a year-end bonus of $1,000. Determine the amount Clyde should include in his gross income this year under the following circumstances Clyde picked up the check in December, but the check could not be cashed immediately because it was postdated January 10.
$0
Grady received $8,200 of Social Security benefits this year. Grady also reported salary and interest income this year. What amount of the benefits must Grady include in his gross income under the following five independent situations? Grady files single and reports salary of $12,100 and interest income of $250.
$0
Ralph owns a building that he is trying to lease. Ralph is a calendar-year, cash-method taxpayer and is trying to evaluate the tax consequences of three different lease arrangements. Under lease 1, the building rents for $500 per month, payable on the first of the next month, and the tenant must make a $500 security deposit that is refunded at the end of the lease. Under lease 2, the building rents for $5,500 per year, payable at the time the lease is signed, but no security deposit is required. Under lease 3, the building rents for $500 per month, payable at the beginning of each month, and the tenant must pay a security deposit of $1,000 that is to be applied toward the rent for the last two months of the lease. What amounts are included in Ralph's gross income this year if a tenant signs lease 1 on December 1 and makes timely payments under that lease?
$0
Todd and Margo are seeking a divorce and no longer live together. Margo has offered to pay Todd $42,000 per year for five years if Margo receives sole title to the art collection. This collection cost them $100,000 but is now worth $360,000. All other property is to be divided equally. How much of the gain would be taxed to Todd if Margo sells the art at the end of five years?
$0 - Margo is the sole owner
Louis files as a single taxpayer. In April of this year he received a $900 refund of state income taxes that he paid last year. How much of the refund, if any, must Louis include in gross income under the following independent scenarios? Assume the standard deduction last year was $6,300. Last year Louis had itemized deductions of $4,800 and he chose to claim the standard deduction. Louis's itemized deductions included state income taxes paid of $1,750.
$0 - his SD was greater than itemized
Clyde is a cash-method taxpayer who reports on a calendar-year basis. This year Paylate Corporation has decided to pay Clyde a year-end bonus of $1,000. Determine the amount Clyde should include in his gross income this year under the following circumstances Paylate Corporation mailed the check to Clyde before the end of the year (and it was delivered before year-end). Although Clyde expected the bonus payment, he decided not to collect his mail until after year-end.
$1,000
Clyde is a cash-method taxpayer who reports on a calendar-year basis. This year Paylate Corporation has decided to pay Clyde a year-end bonus of $1,000. Determine the amount Clyde should include in his gross income this year under the following circumstances Paylate Corporation wrote the check and put it in his office mail slot on December 30 of this year, but Clyde did not bother to stop by the office to pick it up until after year-end.
$1,000
Ralph owns a building that he is trying to lease. Ralph is a calendar-year, cash-method taxpayer and is trying to evaluate the tax consequences of three different lease arrangements. Under lease 1, the building rents for $500 per month, payable on the first of the next month, and the tenant must make a $500 security deposit that is refunded at the end of the lease. Under lease 2, the building rents for $5,500 per year, payable at the time the lease is signed, but no security deposit is required. Under lease 3, the building rents for $500 per month, payable at the beginning of each month, and the tenant must pay a security deposit of $1,000 that is to be applied toward the rent for the last two months of the lease. What amounts are included in Ralph's gross income this year if the tenant signs lease 3 on December 31 and makes timely payments under that lease?
$1,500
Clyde is a cash-method taxpayer who reports on a calendar-year basis. This year Paylate Corporation has decided to pay Clyde a year-end bonus of $1,000. Determine the amount Clyde should include in his gross income this year under the following circumstances Paylate Corporation mistakenly wrote the check for $100. Clyde received the remaining $900 after year-end.
$100
Bonnie and Howard are getting divorced. Under the terms of the decree Bonnie will pay Howard $100,000 in cash in each of the next ten years (or until Howard's death or remarriage). In addition, Bonnie will transfer a residence worth $2,000,000 to Howard and pay $30,000 per year to support their daughter, Kristina, until she turns 19 years old. What amount (if any) is included in Howard's gross income this year? $2,130,000 $100,000 $500,000 $130,000 None of the payments
$100,000
exclusion amount is limited to _______ for foreign earned income
$102,100
a maximum of _______ in 2017 of employer-provided foreign housing may also be excluded
$14,294
Although Hank is retired, he is an excellent handyman and often works part-time on small projects for neighbors and friends. Last week his neighbor, Mike, offered to pay Hank $500 for minor repairs to his house. Hank completed the repairs in December of this year. Hank uses the cash method of accounting and is a calendar-year taxpayer. Mike paid Hank $200 in cash in December of this year and promised to pay the remaining $300 with interest in three months.
$200
Although Hank is retired, he is an excellent handyman and often works part-time on small projects for neighbors and friends. Last week his neighbor, Mike, offered to pay Hank $500 for minor repairs to his house. Hank completed the repairs in December of this year. Hank uses the cash method of accounting and is a calendar-year taxpayer. Compute Hank's gross income for this year from each of the following alternative transactions: Mike gave Hank tickets in December to the big game in January. The tickets have a face value of $50 but Hank could sell them for $400. Hank went to the game with his son.
$400
Although Hank is retired, he is an excellent handyman and often works part-time on small projects for neighbors and friends. Last week his neighbor, Mike, offered to pay Hank $500 for minor repairs to his house. Hank completed the repairs in December of this year. Hank uses the cash method of accounting and is a calendar-year taxpayer. Compute Hank's gross income for this year from each of the following alternative transactions: Mike bought Hank a new set of snow tires. The tires typically sell for $500, but Mike bought them on sale for $450.
$450
Ralph owns a building that he is trying to lease. Ralph is a calendar-year, cash-method taxpayer and is trying to evaluate the tax consequences of three different lease arrangements. Under lease 1, the building rents for $500 per month, payable on the first of the next month, and the tenant must make a $500 security deposit that is refunded at the end of the lease. Under lease 2, the building rents for $5,500 per year, payable at the time the lease is signed, but no security deposit is required. Under lease 3, the building rents for $500 per month, payable at the beginning of each month, and the tenant must pay a security deposit of $1,000 that is to be applied toward the rent for the last two months of the lease. What amounts are included in Ralph's gross income this year if the tenant signs lease 2 on December 31 and makes timely payments under that lease?
$5,500
group term life insurance exclusion amount for employer payments
$50,000
Although Hank is retired, he is an excellent handyman and often works part-time on small projects for neighbors and friends. Last week his neighbor, Mike, offered to pay Hank $500 for minor repairs to his house. Hank completed the repairs in December of this year. Hank uses the cash method of accounting and is a calendar-year taxpayer. Mike paid Hank $100 in cash in December of this year and gave him a negotiable promissory note for $400 due in three months with interest. Hank sold the note in January for $350.
$500
income from partnerships
-a partnership is not a separate taxable entity -files an information return (form 1065)
exemption amount for tax avoidance loan
0
what % of tax do individuals pay who are in the 10% or 15% tax bracket
0%
exceptions to prizes and awards
1) taxpayer designates qualified organization to receive price or award 2) employee achievement awards of tangible personal property made in recognition of length of service or safety achievement - no cash - limit $400 per employee annually (excess is taxable)
what is the penalty amount for early distributions for annuities
10% but penalty is waived for over 59.5 or disabled
what % of tax do individuals pay who are in the 25, 28, 33, or 35% tax bracket
15%
george is a 50% partner in ABC. ABC reported $30,000 of business income and $5,000 of interest income this year. ABC also distributed $2,000 of cash to george. what amounts of gross income from his ownerships in ABC would george report for the current year?
15,000 + 2,500 = 17,500 (distributions are not taxed)
what % of tax do individuals pay who are in the 39.6% tax bracket
20%
maximum deduction for student loan interest
2500
Anne purchased an annuity from an insurance company that promised to pay her $20,000 per year for the next 10 years. Anne paid $145,000 for the annuity, and in exchange she will receive $200,000 over the term of the annuity. How much of the first $20,000 payment should Anne include in gross income?
5,500
Anne purchased an annuity from an insurance company that promised to pay her $20,000 per year for the next 10 years. Anne paid $145,000 for the annuity, and in exchange she will receive $200,000 over the term of the annuity. How much income will Anne recognize over the term of the annuity?
5,500 x 10 years = 55,000
Louis files as a single taxpayer. In April of this year he received a $900 refund of state income taxes that he paid last year. How much of the refund, if any, must Louis include in gross income under the following independent scenarios? Assume the standard deduction last year was $6,300. Last year Louis claimed itemized deductions of $6,550. Louis's itemized deductions included state income taxes paid of $1,750.
6,550 - 6,300 = 250
Grady received $8,200 of Social Security benefits this year. Grady also reported salary and interest income this year. What amount of the benefits must Grady include in his gross income under the following five independent situations? Grady files married joint and reports salary of $75,000 and interest income of $500.
6,970
Louis files as a single taxpayer. In April of this year he received a $900 refund of state income taxes that he paid last year. How much of the refund, if any, must Louis include in gross income under the following independent scenarios? Assume the standard deduction last year was $6,300. Last year Louis claimed itemized deductions of $7,740. Louis's itemized deductions included state income taxes paid of $2,750.
7,740 - 6,300 = 1,440 BUT the answer is 900 can't exclude more than the refund amount
Grady received $8,200 of Social Security benefits this year. Grady also reported salary and interest income this year. What amount of the benefits must Grady include in his gross income under the following five independent situations? Grady files single and reports salary of $22,000 and interest income of $600.
850
is mere appreciation in wealth (economic income) considered in realized income Y/N
N
Devon owns 1,000 shares of stock worth $10,000. This year he received 200 additional shares of this stock from a stock dividend. His 1,200 shares are now worth $12,500. Must Devon include the dividend paid in stock in income? No, dividends paid in stock are generally not included in gross income. Yes, dividends paid in stock are generally included in gross income.
No, dividends paid in stock are generally not included in gross income.
This year Bill purchased 1,000 shares of Cain common stock for $12 per share. At year-end the Cain shares were worth $32 per share. What amount must Bill include in income this year? $12,000 $20,000 $32,000 Bill can deduct $12,000 None of the above - Bill has not realized any gain.
None of the above - Bill has not realized any gain.
Identify the rule that determine whether a married taxpayer must recognize income earned by their spouse: -Residence of the married couple in a community property law state. -Tax benefit rule. -Residence of the married couple in a community property law state and tax benefit rule. -None of the above.
Residence of the married couple in a community property law state.
To calculate the amount realized on the sale of an asset, the proceeds is reduced by which of the following? Tax basis of the property. Selling expenses. Gain realized. Tax basis of the property and selling expenses. All of the choices are correct.
Selling expenses.
Generally, a portion of each payment from a purchased annuity represents a return of capital. T/F
T
Gross income includes all realized income that is recognized during the year. T/F
T
Larry received $4,250 from disability insurance that he purchased earlier this year from an insurance provider. Larry is allowed to exclude the $4,250 from his gross income. T/F
T
The cash method of accounting requires taxpayers to recognize income when they receive it in the form of cash, property, or services. T/F
T
The exclusion amount for a purchased fixed-term annuity can be calculated by dividing the cost of the annuity by the total number of payments. T/F
T
income received by the taxpayer's agent is considered to be received by the taxpayer T/F
T - also, a cash basis principal must recognize the income at the time it is received by the agent
Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year: Tax benefit rule. Constructive receipt. Return of capital principle. Claim of right rule. None of the above.
Tax benefit rule.
Todd and Margo are seeking a divorce and no longer live together. Margo has offered to pay Todd $42,000 per year for five years if Margo receives sole title to the art collection. This collection cost them $100,000 but is now worth $360,000. All other property is to be divided equally. a. If Margo's payments cease in the event of Todd's death, how are the payments treated for tax purposes? Taxable to Todd and not deductible by Margo Not taxable to Todd but deductible by Margo Taxable to Todd and deductible by Margo Not taxable to Todd and not deductible by Margo
Taxable to Todd and deductible by Margo
Shelly is a student who has received an academic scholarship to the University. The scholarship paid $4,000 for tuition, $500 for fees, and $400 for books. What amount must Shelly include in her gross income? $ 4,900 $ 4,000 $ 4,500 $ 4,400 Zero - none of the above benefits is included in gross income
Zero - none of the above benefits is included in gross income
items (from this chapter) included in gross income (7)
alimony and separate maintenance payments (property settlements, child support payments) annuity income group term life insurance imputed interest on below-market loans prizes and awards SS benefits unemployment compensation
front-loading of alimony payments
alimony recapture (gross income) for payor deduction from gross income for recipient
income is earned when
all events have occurred that fix taxpayer's right to the income, and the amount can be determined with reasonable accuracy
flexible spending plans
allow employees to accept lower cash compensation in return for employer agreeing to pay certain costs without the employee recognizing income use or lose IRS allows a 2.5 month grace period to use funds for qualified expenses
qualified moving expense reimbursement
allowable moving expenses such as moving household goods/travel not amounts for meals, house-hunting, temporary housing allowances, and reimbursements for expenses related to sale of their prior residence may discriminate For AGI
cafeteria plans
allows employees to choose between cash and certain nontaxable benefits if cash is chosen, amount received is taxable
workers' comp
although may be payment for loss of wages, it is specifically excluded from gross income
acquisition indebtedness
amounts incurred to acquire, construct, or substantially improve the qualified residences interest paid on aggregate acquisition indebtedness of $1M or less (500K MFS) is deductible as qualified residence interest
life insurance investment earnings
arising from the reinvestment of life insurance proceeds are generally subject to income tax
working condition fringe benefits
benefit provided by an employer that would be deductible by the employee if the employee rather than the employer paid the expense (cell phone, work car) may discriminate
accident and health insurance benefits
benefits received under policy purchased by taxpayer are excludible different rules apply if accident and health insurance protection was purchased by individual's employer
biking commuting reimbursement
can exclude up to $20/month received from an employer as reimbursement for cost of commuting by bike (improvement, repair, storage)
3 primary methods of accounting for tax purposed
cash receipts and disbursements method accrual method hybrid method
tax treatment of personal injury
compensatory damages received on account of physical personal injury or physical sickness are excludible (includes amounts received for loss of income associated with physical injury or sickness) all other personal injury damages are taxable (punitive, compensatory damages for nonphysical injury)
interest income accrues _____
daily
alimony is deductible by the _____ and includible in gross income of ______
deductible by the payor includible by recipient *not for divorces after 12/31/18
what dividends are not eligible for reduced tax rates
dividends from certain foreign corporations dividends from tax-exempt entities dividends that do not satisfy the holding period requirement
qualified moving expenses
excluded from AGI but no deduction for related expenses
exclusion formula for interest on education savings bonds
exclusion = (qualified educational expenses paid during year / total redemption proceeds of qualified bonds) x accrued interest
qualified parking
exclusion for 2017 is $255/month
SS benefits (limited extent)
exclusion from gross income
annuities (cost element)
exclusion from gross income
child support payments
exclusion from gross income
gain on sale of personal residence (with limitations)
exclusion from gross income
gifts received
exclusion from gross income
group-term life insurance (coverage up to $50,000)
exclusion from gross income
inheritances
exclusion from gross income
interest from state and local bonds
exclusion from gross income
life insurance paid on death
exclusion from gross income
meals/lodging (furnished for employer's convenience)
exclusion from gross income
municipal bond interest
exclusion from gross income
scholarship grants (limited extent)
exclusion from gross income
veterans' benefits
exclusion from gross income
exclusion ratio
exclusion ratio = (investment in contract) / (expected return under contract)
life insurance proceeds
exempt income to beneficiary if paid solely due to death of insured (relationship to decedent not determinative)
exceptions exist for policy transfers for life insurance
facilitate funding of buy-sell agreements pursuant to a tax-free exchange for receipt of a policy by gift
100% health insurance premiums paid by a self-employed individual
for AGI
contributions to pension, profit sharing, annuity plans, IRAs, etc.
for AGI
deductions for losses on sale of trade or business assets
for AGI
flow through entities
for AGI
interest on student loans
for AGI
penalty on premature withdrawals from time savings accounts/deposits
for AGI
qualified moving expenses
for AGI
qualified tuition and related expenses
for AGI
rent and royalty related
for AGI
trade or business expenses (self-employed)
for AGI
unreimbursed moving expenses
for AGI
up to $250 for teacher supplies for elementary and secondary teachers
for AGI
reimbursed employee business expenses
for AGI unreimbursed go into misc itemized (2%)
alimony paid
for AGI deduction
capital loss deduction (max $3,000)
for AGI deduction
certain payments to IRA and health savings account
for AGI deduction
interest on student loans
for AGI deduction
one-half of self-employment tax paid
for AGI deduction
qualified unreimbursed moving expenses
for AGI deduction
misc itemized deductions (excess of 2% AGI)
from AGI
personal casualty losses (in excess of 10% AGI and $100 floor per casualty)
from AGI
qualified mortgage interest
from AGI
qualified residence interest
from AGI
charitable contributions
from AGI deduction
interest on home motgages
from AGI deduction
investment interest (limited)
from AGI deduction
itemized deductions
from AGI deduction
medical expenses in excess of 7.5 of AGI
from AGI deduction
personal & dependency exemptions
from AGI deduction
taxability of income
income is recognized (taxed) when realized realized when (1) earnings process is complete (measurable change in property rights) and (2) an exchange or transaction has taken place
cash receipts method
income is recognized in the year it is actually or constructively received in cash or cash equivalent an amount is constructively received when it is set aside and made available to taxpayer without substantial restrictions
accrual method
income is recognized in the year that it is earned regardless of when it is collected the accrual method is required for determining purchases and sales when inventory is an income-producing factor
compensation-related loan steps lender borrower
lender: 1) interest income 2) compensation expense borrower: 1) compensation income 2) interest expense
corporation to shareholder loan steps lender borrower
lender: 1) interest income 2) dividend paid borrower: 1) interest expense 2) dividend income
gift loan steps lender borrower
lender: 1) interest income 2) gift made borrower: 1) interest expense 2) gift received
what is the exemption amount for gift loans to be excluded from gross income
less than or equal to 10,000 this also applies to compensation-related and corporation-shareholder loans
transportation in commuter highway vehicle and transit passes
limit on exclusion for 2017 is $255/month
qualified tuition waivers or reductions by nonprofit educational institutions are excluded from income (2)
limited to undergrad tuition waivers exception for graduate teaching or research assistants
home equity indebtedness
loans secured by qualified residences interest is only deductible on portion of home equity loan that does not exceed the lesser of -100K (50K for MFS) or -FMV of home - acquisition indebtedness
subsidized eating facilities (de minimis) can be excluded if
located on or near employer's premises revenue equals or exceeds direct operating costs nondiscrimination requirements are met
taxpayer may seek damages for (4)
loss of income expenses incurred property destroyed personal injury
income from S corporations
may elect to be taxed similarly to a partnership the shareholders (rather than the corp.) pay the tax on corp.'s income
what does not qualify as moving expenses
meals, house hunting, temporary living, fees with purchase/sale of house
what qualifies as a moving expense
moving HH goods and personal effects to new location expenses of travel for taxpayer and family to new location -lodging -actual auto costs or mileage rate of .17/mile for each car
interest on education savings bonds (4)
must be issued to individuals at least 24 years old prohibits gifts of qualified bonds must be used for qualified educational expenses (tuition, not books or room/board) of taxpayer, taxpayer's spouse, or dependents if redemption proceeds exceed education expenses paid in same year the amount of exclusion must be reduced
qualified moving expense reimbursement new place of work mileage
new place of work must be 50 miles farther from former residence than was former place of work
child support payments are _____ by the payor and are ________ by the recipient
nondeductible by the payor not taxed by the recipient
meals/lodging for convenience of employer
nontaxable employers may discriminate between employees
qualified employee discounts
nontaxable if: -discount is not on realty or investment property -item discounted is from same line of business in which employee workds -offered for sale in normal course of business -discount cannot exceed gross profit on property of 20% of the customer price on services -benefit is offered on nondiscriminatory basis
no additional cost services (4)
nontaxable if: -employee receives services -employer incurs no substantial additional cost in providing these services -services offered are within line of business in which employee works -benefit is offered on nondiscriminatory basis
scholarships/fellowships
nontaxable to extent of tuition and related expenses
tax treatment of reimbursement expenses incurred
not income, unless the expense was deducted damages that are a recovery of the taxpayer's previously deducted expenses are generally taxable under the tax benefit rule
amounts received from insurance are __________ when received for medical care or for permanent loss of body part or function
not taxable
premiums paid by employer for insurance coverage of employee, spouse, and dependents are ________ to employee
not taxable
stock dividends
not taxable if shareholder has the option to receive stock or cash, the dividend is taxable whether the shareholder receives cash or stock
annuities with a fixed term - what is the expected value
number of payments x payment amount
employee death benefits may be excludible as a gift if (5)
paid to surviving spouse or children employer derived no benefit from payments surviving spouse/children performed no services for employer decedent had been fully compensated for services rendered payments made pursuant to board of director's resolution under a general company policy
what payments qualify as alimony (4)
payments are in cash agreement or decree does not specify that the payments are not alimony payor/payee are not members of the same HH at the time the payments are being made there is no liability to make the payments for any period after death of recipient
trade/business deductions
permits deduction for all ordinary/necessary expenses paid or incurred in carrying on a trade/business salaries expenses for use of business property 1/2 self-emp. taxes paid all for AGI deductions
how is property treated in a marriage that was purchased during the marriage
property acquired by either spouse during the marriage is usually community property and is treated as though it is owned equally
form 1065 for partnerships (4)
provides data necessary for determining each partner's distributive share of partnership's income and deductions each partner reports distributive share of partnership income and deductions reported in year earned, even if not actually distributed because a partner pays tax on income as the partnership earns it, distributions are treated under the recover of capital rules
taxpayers report _____ and _____ income on their tax returns for the year
realized and recognized
reduction formula for interest on education savings bonds
reduction = (excess of AGI / $15,000 or $30,000) x otherwise excludable interest
tax benefit rule
refunds of expenditures deducted in a prior year are included in gross income to the extent that the refund reduced taxes in year of the deduction
income does not include recovery of the taxpayer's capital investment - 3 examples
repayment of loan sale or property at tax basis (adjusted basis) damages (however punitive and lost profits are taxable)
claim of right doctrine
requires amounts received to be included in income even though the amount is in dispute and might be returned to the payor at a later date if payment has not been received, no income is recognized until the claim is settled
how is property treated in a marriage that was purchased before the marriage
separate property by the spouse who purchased it
phase out amounts for single (HOH) and MFJ
single (HOH): $78,150 MFJ: $117,250
steps to compute annual taxable benefit
step 1: subtract 50,000 from death benefit of their employer-provided group-term policy step 2: divide step 1 by 1,000 step 3: multiple result from 2 by the cost per 1,000 of protection for one month from the table (based on age) step 4: multiply outcome in 3 by number of months the benefit was received during the taxable year
de minimis fringe benefits
supper money occasional personal use of company copying machine company cocktail parties picnic holiday gifts (ham, turkey) may discriminate
scholarships for room and board taxable/nontaxable?
taxable
dividends
taxable to extent paid out of either current or accumulated earnings and profits dividends in excess of E&P are treated: -as nontaxable return of capital to extent of stock basis -as capital gain to extent in excess of basis
beneficiaries of estates and trusts
taxed on the income earned by the estates or trusts that is actually distributed or required to be distributed to them any income not taxed to the beneficiaries is taxable to the estate or trust
time test
taxpayer must be a full-time employee for 39 weeks in the 12 month period following the move OR self-employed must work in new location for 78 weeks during the next two years following the move (and 39 of those weeks must be in the first 12 months)
assignment of income doctrine (3)
taxpayer who earns income from services must recognize the income income from property such as dividends and interest is taxable to the person who actually owns the income-producing property to shift income from property to another person, a taxpayer must also transfer the ownership in the property to the other person
gain on sale of personal residence
taxpayers made exclude up to $250,000 ($500,000 for MFJ) of gain on the sale of their principal residence must satisfy ownership and use tests any excess gain generally qualifies as long-term capital gain
if contributor receives a tangible benefit from donating
the FMV of such benefit reduces the amount of chartable income contribution deduction
community property systems
the income earned from services by one spouse is treated as though it was earned equally by both spouses
how much of a deduction is allowed for athletic tickets? services performed?
tickets: 80% of amount paid services: nothing (can deduct unreimbursed and standard mileage of .14
two tests need to be met for moving expenses to be deductible
time and distance
education expenses of an employee are deductible if they are incurred
to maintain or improve existing skills or to meet express requirements of the employer or requirements imposed by law to retain employment status
education expenses are not deductible if they are incurred
to meet minimum educational standards for existing job or to qualify taxpayer for new trade or business
foreign earned income
to qualify for exclusion - must be either: a bona fide resident of foreign country OR present in foreign country at least 330 days during any 12 consecutive months
gifts are nontaxable to recipient if (2)
transfer is voluntary without adequate consideration made out of affection, respect, admiration, charity, or donative intent
property settlements (4)
transfer of property to former spouse no deduction or recognized gain/loss for transferor no gross income and carryover of transferor's basis for transforee front-loading of alimony payments
tax treatment of property damaged or destroyed
treated as an amount received in a sale or exchange of property (taxpayer has realized gain if damage payments exceed property's basis)
employee education expenses include
tuition, books, supplies, transportation, travel (including lodging and 50% meals)
dependent care benefits
up to $5,000 exclusion for cost of providing care for a dependent under 13 years or disabled cannot be used for amounts paid to child of employee who is under 19 or any other dependent of the employee
education assistance programs (5)
up to $5,250 exclusion for tuition, books, and fees (not meals, lodging or transportation) excess amounts are taxed as compensation to employee amounts excluded from income cannot qualify for educational deductions or credits cannot discriminate for employees who are highly compensated does not cover educational payments for courses involving sports, games, hobbies
qualified retirement planning services
value of any retirement planning advice or information provided by employer who maintains a qualified retirement plan is excluded from income
athletic facilities
value of use of athletic facilities located on employer premises can be excluded
