1040 Part 1 Flashcards
what is box 7 capital gains or (loss)?
schedule D capital gains and losses flows to box 7 capital gains or (loss)
what is box 8 “additional income from schedule 1, line 10”?
schedule C and schedule E income flows to box 8 additional income from schedule 1, line 10
what are From AGI deductions?
refer to “From AGI Deductions” exhibit
what is the hierarchy of For AGI?
gross income less exclusions less deductions
what is included in gross income FOR AGI?
refer to “Gross Income” exhibit
what is included in exclusions FOR AGI?
refer to “Exclusions” exhibit
what is included in deductions FOR AGI?
refer to “Deductions” exhibit
what are fringe benefits?
In addition to paying salary and wages, many employers provide employees with fringe benefits. For example, an employer may provide an employee with an automobile to use for personal purposes, pay for an employee to join a health club, pay for an employee’s moving expenses, or pay for an employee’s home security system. In general, the value of these benefits is included in the employee’s gross income as compensation for services. However, certain fringe benefits, called “qualified” fringe benefits, are excluded from gross income.42 Exhibit 5-3 lists some of the most common fringe benefits excluded from an employee’s gross income.
Medical and dental health insurance coverage [§106]
Life insurance coverage [§79]
De minimis (small) benefits [§132(a)(4)]
Meals and lodging provided for the employer’s convenience [§119]
Employee educational assistance programs [§127]
No additional cost services [§132(a)(1)]
Qualified employee discounts [§132(a)(2)]
Dependent care benefits [§129]
Working condition fringe benefits [§132(a)(3)]
Qualified transportation benefits [§132(a)(5)]
Cafeteria plans [§125]
Flexible spending accounts [§125]
Health savings accounts [§106; §223]
In addition to offering excluded fringe benefits, many employers make contributions to retirement plans on behalf of their employees. Subject to specific rules that we discuss in the Retirement Savings and Deferred Compensation chapter, these contributions (as well as employee contributions from salary) are not currently included in the employee’s gross income but are deferred until the employee withdraws the contributions and related earnings from the plan. We discuss fringe benefits in more depth in the Compensation chapter.
Example 5-24
EWD paid $6,000 this year for Courtney’s health insurance premiums and $150 in premiums for her $40,000 group-term life insurance policy. How much of the $6,150 in benefits can Courtney exclude from her gross income?
Answer: Courtney can exclude all $6,150 in benefits from her gross income. All health insurance premiums paid by an employer on an employee’s behalf are excluded from the employee’s income. In addition, premiums employers pay on an employee’s behalf for group-term life insurance (up to $50,000 of coverage) are also excluded from the employee’s gross income.
Example 5-25
In December, Courtney mailed a newsletter to several dozen friends and relatives with a recent picture of her son, daughter, and mother. Courtney printed both the newsletter and the photos on printers at work (with permission of EWD). Courtney would have paid $55 for the duplicate newsletters and photos at a nearby copy center. How much of this $55 benefit that Courtney received from EWD may she exclude from her gross income?
Answer: All $55 is excluded. The $55 benefit is considered a nontaxable de minimis (so minor as to merit disregard) fringe benefit because it is small in amount and infrequent.
Employee expense reimbursements
Employee expense reimbursements
As a common fringe benefit, many employees are reimbursed for their employee business expenses by their employers. If an employee is required to submit documentation supporting expenses to receive reimbursement and the employer reimburses only legitimate business expenses, then the employer’s reimbursement plan qualifies as an accountable plan. Under an accountable plan (which is the most common method for reimbursement), employees exclude expense reimbursements from gross income and do not deduct the reimbursed expenses. In contrast, if employees receive employer reimbursements for legitimate business expenses but do not have to submit documentation supporting the expenses, the reimbursement is considered taxable compensation, and the employee is not allowed to deduct the expenses as employment-related expenses (reimbursed or not). You can imagine that employees really favor accountable plans.
what are individual retirement accounts?
refer to “IRA exhibits”
what is the difference between personal property and personal use property? (property tax)
refer to “Personal Property” exhibit
what are the characters of assets to determine how they are taxed? (property tax)
refer to “Character of Assets” exhibit
how is a capital asset defined? (property tax)
- Capital Asset Defined. A capital gain or loss arises from the sale or exchange of a capital asset. A capital asset is generally any property, whether or not connected with a trade or business (Code Sec. 1221; Reg. §1.1221—1). Thus, capital assets include nonbusiness assets such as personal use automobiles or personal residences and assets held for investment such as stocks and bonds.
what are non-capital assets? (property tax)
~ stock in trade, inventory, and property held primarily for sale to customers in the ordinary course of the taxpayer’s trade or business;
~ a note or account receivable acquired in the ordinary course of trade or business for services, or from the sale of stock in trade or property held primarily for sale in the ordinary course of business;
~ depreciable business property; Section 1231 assets are depreciable assets
~ real property used in the taxpayer’s or ; AS INVENTORY
~a copyright, a literary, musical or artistic composition, a letter or memorandum, or similar property, or a patent, invention, model, secret formula, or process held by the taxpayer who created it, or by a taxpayer whose basis in the property is determined by reference to the basis of the person who created it, or, in the case of
~a letter, memorandum or similar property, a taxpayer for whom such property was prepared or produced;
~a US. government publication (including the Congressional Record) held by a taxpayer Who received it (or by another taxpayer whose basis in the publication is determined in whole or in part by reference to the original recipient’s basis) other than by purchase at the price at which the publication is offered to the public;
~commodities derivative financial instruments held by commodities derivatives dealers
~ hedging transactions (1] 1949) entered into in the normal course of the taxpayer’s business; and
~supplies of a type regularly used or consumed by the taxpayer in the ordinary course of business.
Personal Property. Gain from the sale of an individual’s household furnishings, personal residence, or automobile is
generally taxed as capital gain. Loss from the sale is not recognized unless the property was held for the production of income.
refer to “Non Capital” exhibit
