Subunit 1.2

Are payments to a holder of a debt obligation incurred by state or local government entity taxable or exempt?

They are exempt.

Is interested on US savings bonds excludable from gross income?

To a certain extent if used for certain educational purposes, but in general the US savings bonds is not tax exempt.

What is the exclusion for interest on Series EE bonds?

To the extent it is spent on qualified higher education expenses for the year, "qualified higher education expenses" means tuition and fees required for enrollment or attendance for the taxpayer, tp's spouse, and any person whom the tp can claim as a dependent. "Otherwise qualified higher education expenses are reduced by scholarships (and other such benefits) not includible in gross income.

Does gross income exclude the amount received in a scholarship or grant?

Yes, it does but ONLY to the extent that this scholarship or grant does not cover room and board. So books, supplies, and equipment, are all solid but room and board is a no go. Ex: if you get a grant for 2000 but you have room and board that costs 1000 then books that cost 500. you can only take away the 500 from the grant the rest is taxable.

Virtual Currency is treated like property for US federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. What does this mean?

1. Wages paid to employees using virtual currency are taxable to the employee must be reported by the employer on the w-2 and are subject to taxes. 2. if the virtual currency is issued to a person that is self employed then that means this currency would be issued on form 1099. If you get virtual currency as payment for goods and services you must in computing gross income include the fair market value of the virtual currency measured in US dollars.

If your social security benefits are considered taxable, the maximum percent of net benefits received that can be included in income is

85%

What is the hybrid method?

A business to use the cash method for the portion of the business that is not required to be on the accrual method.

What is a capital gain dividend?

A distribution by regulated investment company, or mutual fund, of a capital gains realized from the sale of investments in the fund. Capital gain dividends are long term regardless of how long the shareholder has owned the stock.

Information about rental income

Accural basis tax payers report income when it is earned. All amounts received or accrued as rents are includible in income. Security deposits are income if and when the lessor becomes entitled to the funds by reason of the lessee's violation of the terms of the lease. Advance rent received upon execution of a lease is includible in gross income in the year received, whether the taxpayer is on the cash or accrual basis.

What should you do if there is an error on your 1099-MISC?

Any errors on this form should be reported to the payor. If the payor will not correct and reissue the new form, the taxpayer must attach an explanation and report the correct amount.

Gross income is defined as ?

As all income from whatever source derived that is not specifically excluded. Unemployment benefits received under a federal or state program are gross income.

When is prepaid income taxable?

Generally in the year received whether the taxpayer is on the cash or accrual method of accounting. ... prepayments for mechandise inventory are not income until the merchandise is shipped.

What is assignment of income?

Gross income includes income attributable to a person even though the income is received by other persons. Example: Swift, a life insurance salesperson, directs his employer to pay his commissions to his daughter. The commissions paid to Swift's daughter are gross income to Swift. Example: Taxpayer makes a gift of interest earned on securities to her 20 year old daughter who attends college. The interest is gross income to Taxpayer.

When should social security benefits be included in gross income?

IF the sum of the "modified" adjusted gross income plus 1/2 of the social security benefits exceeds $25K on a single return but does not exceed $34K

What does it mean for income to be constructively received?

Income, although not actually in the taxpayer's possession, is construviely received in the taxablee year during which it is credited to his/her account, set apart for him or her or otherwise made available so that he or she may draw upon it at any time. 1) A check received in the mail is considered to be income on the date received, whether or not it is cashed. 2) To determine receipt of income from securities trades, the trade date rather than the settlement date should be used 3) However, income is not constructively received if the taxpayer's control of its reciept is subject to substantial limitations or restrictions. 4) Constructive receipt applies to the cash method of accounting. Under the accrual method, income is reported in the year earned.

When is the interested considered received?

Interest is the value received or accused for the use of money. Interest is reported under the doctrine of constructive receipt when it has been credited to the taxpayer.

What is a consequence of income being classified as "income in respect of a decent"?

It receives no step up in basis upon the decent's death Therefore it has a carryover basis..

Is a loan and money from a parent considered includible for gross income?

Money from a loan is not includible as long as their is an obligation to pay it back . Money from a parent is seen as a gift.

When the state provides funds SPECIFICALLY to help with utility's is that taxable?

No it can be excluded.

Are pensions and social security taxable?

Pensions are taxable and social security is not.

What is 1099-MISC used for?

Reporting a variety of types of income not reported on a w-2 or any other specific form 1099s.

What is income in resect of a dependent?

That which is earned by the taxpayer but is neneither received prior to his or her death nor accused prior to his or her death if on the accrual method. So it is not included in the decedent's final return.

For the cash method of accounting and accrual method of accounting when is income recognized?

The cash method of accounting includes income when constructively received. The accrual method of accounting reports income when: 1) All events have occurred fixing the right to receive the income. 2) The amount can be determined with reasonable accuracy. Note: The accrual method is required when there are inventories

Is all compensation for personal services gross income?

Yes, the form of payment is irrelevant. 1) if services are paid for in property it is fait market value at the time of receipt is gross income. 2) the amount included in income becomes the basis in the property 3) Reported and unreported compensation is considered gross income. 3a. food service employers required to allocate tip income 8% of food and drink sales to determine the allocable amount.

Is interest included in gross income?

Yes, unless it is a State or political subdivision of the state like municipal bonds. Be careful here because although the personal injury check is tax exempt the interest income earned off of the award is not tax exempt.

Gross income includes income from the discharge of indebtedness unless it is ...

bankruptcy and find the other ones..

Gross income does not include

benefits received in the form of disability pay, health or accident insurance proceeds, workers comp aware or other "damages" or personal physical injury or physical sickness.

Prizes and awards made primilary in recognition of charitable, scientific, educational etc achievement

can be excluded from gross income only if the recipient was selected without any action on his/her part and is not required to render substantial future services as a condition of the award and they ASSIGN IT TO CHARITY.

Tip allocation percent

eight percent of food and drink sales to determine the allocable amount. less the amount reported by servers.

As a general rule if the lessee pays any of the expenses of his or her lessor

such payments are additional rental income to the lessor

If property is received in exchange for performance of services ...

the excess of the fair market value of such property over the amount paid for such property is included in gross income.... So basically if a person does not not pay anything for the property, but gets the property as a result of his/her services then the property's FMV must be included in gross income as a taxable income.