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