2.2 Taxability of Earnings Flashcards
What is constructive receipt - CR?
When the income is received.
When a check is received in the mail = CR.
Cash advances = CR in the tax year it was received.
CR applies to the cash method of accounting
Claim of right Doctrine
A taxpayer receiving income under a claim of right and without restrictions on its use or disposition is taxed on that income in the year it is received even though the right to retain the income is not yet fixed or the taxpayer may later be required to return the income.
When do Employee achievement awards qualify for exclusion from the recipient employee’s gross income
The awards do not exceed $400 (cost ot employer) for all nonqualified plan awards to an individual
the awards do not exceed $1,600 (cost to employer) for all qualified plan awards to an individual.
Assignment of Income
gross income includes income attributable to a person even if the income is received by other persons. IE Life insurance commissions paid to the daughter of the agent.
When does rental income NOT have to be reported as income for a personal residence or vacation home.
if the property is rented less than 15 days in a calendar year. Corresponding expenses cannot be deducted
Foreign-Earned Income Exclusion rule
U.S. citizens and qualifying resident aliens may exclude up to $126,500 (for a calendar year 2024) of foreign-earned income and a statutory housing cost allowance from gross income.
When are scholarships taxed
If employment is required to receive the scholarship. IE Teaching assistant
Treasure Trove
gross income reported in the year that the treasure was discovered. Example = Piano discovered 15 years later had $10,000 in it
How do you qualify for Froegin-Earned income exclusion. 1 of the following 3
- US Citizen who is a gona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year
- US Resident alien who is a citizen or national of a country with which the US has an income tax treaty in effect and who is a bona fide resident of a foreign coutnry or countries for an uniterrupted period that includes an entire tax year.
- US citizen or US resident who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
What is the minimum personal use rule for the vacation home rules
If the taxpayer uses the property more than the greater of 14 days or more than 10% of the number of days for which the residence is rented. Then
What are the vacation home rules
if the property passes the minimum rental-use test but fails the minimum personal-use test, the property is considered a vacation home, and rental deductions may not exceed the gross income derived from rental activites.
What is Imputed Interest
Below-Market loans generate interest income that must be reported.
Original Issue Discount interest taxation
Based on the effective interest rate method of amortization in order to tax the excess, if an of the stated redemption price at maturity. Look at example 2-12
Can interest on a US Savings bond be excluded from taxation if it is used to pay tuition expenses?
YES. Lots of rules
What is a private activity bond
10% of the proceeds aer to be used in a private business and more than 10% of the principal or interest is secured or will be paid by private business property or more than 5% or 5% million of the proceeds are to be used for private loans, whichever is lesser
