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REG > 4 Gross Income and Exclusions > Flashcards

4 Gross Income and Exclusions Flashcards

1
Q

What is gross income?

A

The internal Revenue Code defines gross income as all income from whatever source derived except as otherwise provided.

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2
Q

What are types of income that constitute gross income?

A
  • compensation for services, including fees, commissions, and fringe benefits
  • gross income derived from business
  • gains derived from dealings in property
  • interest
  • rents
  • royalties
  • dividends
  • annuities
  • income from life insurance and endowment contracts
  • pensions
  • income from discharge of indebtedness
  • distributive share of partnership gross income
  • income in respect of a decedent (income earned but not received before death)
  • income from an interest in an estate or trust
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3
Q

Does property or credit given in lieu of cash or check included in gross income?

A

Yes, the fair market value of the property or credit is included in gross income

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4
Q

What is gross income of an employee?

A

Any amount paid by an employer for a liability (including taxes) or an expense of the employee.

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5
Q

What is the threshold for employers to provide a W-2 to an employee?

A

In 2022 an employer is not required to provide a W-2 for wages less than $2,400.00

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6
Q

What types of income must also be included on form W-2 and in the total on line 1 of form 1040?

A
  • household employee wages
  • tip income the taxpayer did not report to the employer
  • dependent care benefits, reported in box 10 on form W-2
  • employer-provided adoption benefits, box 12 on form W-2 with code T
  • excess salary deferrals, box 12 on form W-2
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7
Q

What happens if an employer transfers property to an employee at less than its FMV (bargain purchase)?

A

The difference may be income to the employee and treated as compensation for personal services

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8
Q

Are scholarships and fellowships received for room, board, or incidental expenses gross income?

A

Yes

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9
Q

What are the two types of reimbursed employee expense plans?

A

Nonaccountable and accountable

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10
Q

What is a nonaccountable reimbursed employee expense plan?

A

The employee reimbursements are advances that are included in gross income.

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11
Q

What are accountable reimbursed employee expense plans?

A

The employee must submit requests for reimbursement, and only reimbursements in excess of expenses must be included in gross income.

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12
Q

Are qualified reimbursements for moving expenses included in gross income?

A

If the reimbursement is not for qualified moving expenses or the taxpayer is not a member of the military the reimbursement is included in gross income.

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13
Q

How are employer contributions to qualified retirement plans and elective deferrals treated regarding gross income?

A

They are not included in income upon contribution, instead the contributions and earnings are included in income and taxed at distribution.

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14
Q

What are examples of interest income?

A
  • merchandise premium - ex a toaster given to a depositor for opening an interest-bearing account
  • imputed interest on below-market term loans
  • interest on state, local, and federal tax refunds
  • interest from U.S. treasury bonds
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15
Q

What form is sent to taxpayers for interest income?

A

1099-INT

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16
Q

How is taxable interest reported on form 1040?

A

Taxable interest is reported on form 1040 with Schedule B attached if the total is over $1500.00

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17
Q

What form is sent to taxpayers for ordinary and qualified dividends?

A

1099-DIV

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18
Q

How are ordinary dividends reported on form 1040?

A

They are reported on form 1040 with Schedule B attached if the total is over $1500.00 or the taxpayer received, as a nominee, ordinary dividends that actually belong to someone else.

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19
Q

How are qualified dividends reported on form 1040?

A

They are included in Schedule B in the ordinary dividend total

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20
Q

What form is sent to taxpayers for state or local income tax refunds, credits, or offsets?

A

1099-G

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21
Q

When are state and local income tax refunds or credits nontaxable?

A

If the in year the taxpayer paid the tax, the taxpayer either did not itemize deductions or did not deduct state and local income taxes

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22
Q

How are alimony and separate maintenance payments treated regarding gross income?

A

These are included in gross income of the recipient, and they are deducted from the gross income of the payor for divorce decrees executed prior to 2019.

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23
Q

When are payments considered to be alimony?

A

A payment is considered to be alimony (even if paid to a third party) when it is:

  • paid in cash
  • paid pursuant to a written divorce or separation instrument
  • terminated at death of recipient
  • not designated as other alimony- ex. child support
  • not paid to a member of the same household
  • not paid to a spouse with whom the taxpayer is filing a joint return
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24
Q

Are payments to a third party for the benefit of the payor’s ex-spouse considered qualified alimony payments?

A

Yes, if all other requirements are met

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25
Q

Are property settlements treated as alimony?

A

NO

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26
Q

What are property settlements?

A

Property transferred to a spouse or former spouse incident to a divorce, these are treated as a trasfer by gift, which is specifically excluded from gross income.

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27
Q

What does “incident to a divorce” mean?

A

It means a transfer of property within 1 year after the date the marriage ceases or a transfer of property related to the cessation of the marriage.

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28
Q

What is the basis for property transferred to a spouse or former spouse?

A

The original basis

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29
Q

If property is transferred incident to a divorce, and the spouse or former spouse is a nonresident alien, does the exclusion from gross income apply?

A

No

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30
Q

How are child support payments treated regarding gross income?

A

Child support payments are an exclusion from gross income of the recipient and are not deductible by the payor. These payments are not considered alimony.

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31
Q

How are partial payments of both alimony and child support treated if the divorce or separation instrument specifies payments of both?

A

If the divorce or separation instrument specifies payments of both alimony and child support and only partial payments are made, the payments are considered to be child support until this obligation is fully paid, and any excess is then treated as alimony.

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32
Q

How are child support payment reductions, based on a contingency relating to a child handled?

A

If the payment amount is to be reduced based on a contingency relating to a child (attaining a certain age, marrying), the amount of the payment reduction will be treated as child support.

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33
Q

How is alimony treated for divorces finalized after 2018?

A

For a divorce finalized after 2018, alimony is not deductible by the payor and is not included in the gross income of the recipient.

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34
Q

How is business income calculated?

A

Business income includes service and non-service income, it is calculated in a manner similar to individuals, and is reported on Schedule C.

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35
Q

What are examples of supplemental income?

A
  • rental real estate
  • royalties
  • partnerships and LLCs
  • S corporations
  • estates
  • trusts
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36
Q

What schedule is used to report supplemental income?

A

Schedule E

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37
Q

What types of income come from Schedule K-1?

A
  • partnerships and LLCs
  • S corporations
  • estates
  • trusts
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38
Q

How are amounts received in advance for future goods and services treated?

A

Generally they are required to be included in the year of receipt, however, accrual-basis taxpayers can elect to defer recognition until the time of performance, up to the year after the payment date.

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39
Q

What is rent?

A

Rent is income from an investment, not from the operation of a business.

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40
Q

What is included in lessor gross income?

A
  • a bonus received for granting a lease
  • value received to cancel or modify a lease
  • an amount paid by a lessee to maintain the property in lieu of rent- ex. property tax payments
  • FMV of lessee improvements made to the property in lieu of payment
  • prepaid rent, with no restriction as to its use, is income regardless of the method of accounting
  • rental income from a residence unless the residence is rented out for less than 15 days a year
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41
Q

How are refundable lessee deposits treated regarding income?

A

A lessee’s refundable deposit is not income to the lessor

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42
Q

How are amounts received by a lessee to cancel a lease treated regarding income?

A

Amounts received by a lessee to cancel a lease are treated as amounts realized on disposition of an asset/property (a capital gain).

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43
Q

How would a lessor treat amounts paid by a lessee to maintain the property in lieu of rent?

A

The lessor includes the payment in gross income and may be entitled to a corresponding deduction - ex. a property tax deduction.

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44
Q

How would a lessor treat the cost of maintenance paid by a lessee in lieu of rent?

A

The lessor may deduct the cost of maintenance as a rental expense.

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45
Q

How would a lessor treat the cost of capital expenditures paid by a lessee in lieu of rent?

A

The cost of capital expenditures may be capitalized and depreciated by the lessor. The FMV of lessee improvements not made in lieu of rent are excluded.

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46
Q

Rental income from a residence is excluded if the residence is rented out for less than 15 days a year, how are the corresponding rental deductions treated?

A

if rental income is excluded, the corresponding rental deductions are also disallowed

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47
Q

How are bartered services or goods treated regarding income?

A

They are included in gross income at the fair market value of the items received in exchange for the services.

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48
Q

How bartered exchanges reported?

A

They are required to file form 1099-B and the transaction is recorded on form 1040 Schedule C

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49
Q

What are royalties?

A

Payments to an owner by people who use some right belonging to that owner.

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50
Q

How is partnership income treated regarding income?

A

A partner’s share of partnership income is included in gross income whether distributed or not

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51
Q

How is S corporation income treated regarding income?

A

An owner’s pro rata share of S corporation income is also included whether distributed or not

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52
Q

What is income in respect of a decedent?

A

Earned income that was not received before death

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53
Q

What is investment income (including gains derived form dealings in property)?

A

An investor in property seeks a return of the investment (capital) and gross income from the investment, which may be in the form of gains, interest, rents, royalties, or dividends.

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54
Q

What is a gain on disposition of investment property?

A

The net increase (appreciation) in the value of the property.

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55
Q

When is investment income realized?

A

When a taxable event such as a disposition of the property by sale or an exchange occurs.

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56
Q

How is realized gain calculated?

A

Total money received and to be received + FMV at time of disposition of property received and to be received + amount of liabilities transferred with the property - any selling expenses - liabilities assumed = amount realized

amount realized - adjusted basis = gain (or loss) realized

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57
Q

When are gains on disposition of investment property recognized (included in gross income)?

A

All gains realized are recognized unless a statutory provision provides for its nonrecognition by way of exclusion or deferral.

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58
Q

What does recognition mean?

A

Included in gross income

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59
Q

What is adjusted basis (AB)?

A

Adjusted basis indicates the amount of capital invested in the property and not yet recovered by tax benefit (depreciation).

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60
Q

How is adjusted basis calculated?

A

basis on acquisition (ex - acquisition cost, acquisition debt, assumed liabilities) +(-) adjustments to basis (ex - depreciation, + improvements) = Adjusted Basis

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61
Q

What forms and schedules must a taxpayer attach if they sold a capital asset (ex- stock)?

A

They must attach form 8949 - sales and other dispositions of capital assets, Schedule D - capital gains and losses, and form 4797 - sales of business property

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62
Q

What form would a taxpayer complete and attach if they sold or exchanged assets used in a trade or business (ex - delivery trucks)?

A

Form 4797 sales of business property

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63
Q

What is an individual retirement account (IRA)?

A

A personal savings plan that gives the taxpayer tax advantages for setting aside money for retirement.

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64
Q

What are the advantages of an IRA?

A
  • contributions the taxpayer makes to an IRA may be fully or partially deductible, depending on which type of IRA the taxpayer has and the taxpayer’s circumstances
  • generally, amounts in the taxpayer’s IRA (including earnings and gains) are not taxed until distributed. In some cases, amounts are not taxed at all (or partially taxed) if distributed according to the rules.
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65
Q

What form does a taxpayer receive for IRA distributions?

A

1099-R - it reports the gross distribution and taxable amount (if known) before income tax or other deductions are withheld

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66
Q

What is a pension?

A

A series of definitely determinable payments (most often paid in the form of an annuity) made to a taxpayer after the taxpayer retires from work.

67
Q

How are pension payments made?

A

They are paid regularly and are based on such factors as years of service and prior compensation.

68
Q

What is the pension investment?

A

The amount contributed by the employee in after-tax dollars

69
Q

How are early pension withdrawals treated?

A

Amounts withdrawn early are treated as recovery of the employee’s contributions (excluded from gross income) and of the employer’s contributions (included in gross income).

70
Q

How are withdrawals from pensions treated after all of the employee’s contributions are recovered?

A

After all of the employee’s contributions are recovered, additional withdrawals are fully included in gross income.

71
Q

What is a noncontributory pension plan?

A

A plan that does not require an employee to contribute, this results in all withdrawals being included in gross income.

72
Q

How are annuity payments treated regarding income?

A

annuity payments are included in gross income unless a statute provides for their exclusion

73
Q

How are pension/annuity contribution recoveries treated regarding income?

A

Retirees are able to recover their contributions to their pensions (cost of annuity) tax-free

74
Q

What form will a taxpayer receive for pension and annuity payments?

A

1099-R total amount of payments before income tax or other deductions were withheld

75
Q

How are unemployment benefits treated regarding income?

A

Unemployment benefits received under a federal or state program are gross income. Supplemental unemployment benefits from a noncontributory fund that is company financed are taxable as wages (not unemployment).

76
Q

What form will a taxpayer receive for unemployment benefits?

A

1099-G

77
Q

What form reports supplemental unemployment benefits?

A

Form W-2

78
Q

Are Social Security Benefits (SSB) taxable?

A

SSB are generally not taxable unless additional income is received. The gross income inclusion is dependent upon the relation of provisional income (PI) to the base amount (BA) and the adjusted base amount (ABA).

79
Q

What portion of Social Security Benefits is taxable when additional income is received?

A

The portion of SSB that exceeds a base amount related to other sources of income.

80
Q

How a is provisional income (PI) calculated?

A

PI = Adjusted gross income (AGI) + tax-exempt interest + excluded foreign income + 50% of SSB

81
Q

What is the base amount (BA) for SSB?

A

$32,000 if married filing jointly (MFJ), $0 if married filing separately and having lived with a spouse at any time during the tax year (MFSLT), or $25,000 for all others

82
Q

What is the adjusted base amount (ABA) for SSB?

A

$44,000 if married filing jointly (MFJ), $0 if married filing separately and having lived with spouse at any time during the tax year (MFSLT), or $34,000for all others

83
Q

How is SSB calculated?

A

If provisional income (PI) is less than the base amount (BA), SSB is excluded from gross income. If PI is greater than BA, but less than or equal to ABA, up to 50% of SSB will be included in gross income. If PI is greater than ABA, up to 85% of SSB will be included in gross income.

84
Q

What form do taxpayers receive for Social Security Benefits?

A

SSA-1099

85
Q

What items are considered other income?

A
  • gambling winnings
  • prizes or awards
  • business inducements transfer value (even as “gifts) in exchange for past or anticipated economic benefits
  • treasure troves that are undisputedly in the taxpayer’s possession
  • income from illegal activities
  • discharge (cancellation) of indebtedness when a debt is canceled in whole or part for consideration
86
Q

How are gambling winnings reported as gross income?

A

Winnings can be offset by gambling losses (ex- non-winning lottery tickets) only to the extent of winnings and only as other itemized deductions.

87
Q

Can gambling losses over winnings for the taxable year be used as a carryover or carryback to reduce gambling income from other years?

A

No

88
Q

How are prizes or awards reported as gross income?

A

Prizes or awards in a form other than money are included in gross income at the FMV of the property

89
Q

What prizes or awards are excludable?

A
  • transfers to charities
  • employee achievement
90
Q

How can an honoree avoid including prizes or awards?

A

By rejecting the prize or award

91
Q

How are business inducements included reported as gross income?

A

The FMV of the inducement is income to the recipient

92
Q

Does gross income include the recovery of tax benefit items in a prior year?

A

Yes

93
Q

What is a treasure trove?

A

Money found - ex- a purchase of an old piano for $500, the purchaser finds $10,000 hidden in the piano, the $10,000 must be reported as gross income in the current year

94
Q

What happens if a debtor performs services to satisfy a debt?

A

The debtor must recognize the amount of the debt as income

95
Q

What happens if a creditor gratuitously cancels a debt?

A

The amount forgiven is treated as a gift

96
Q

What debt discharges are not included in gross income?

A
  • debts discharged in a bankruptcy
  • when the debtor is insolvent but not in bankruptcy - the maximum amount that can be excluded is the amount by which liabilities exceed the FMV of assets
  • discharges related to qualified farm indebtedness
  • discharges related to a purchase-money debt reduction in which a seller reduces the debt and the debtor is not in bankruptcy and is not insolvent, these are treated as a purchase price adjustment
  • discharges secured by a principal residence and were incurred in the acquisition, construction, or substantial improvement of the principal residence pursuant to the Mortgage Forgiveness Debt Relief Act (extended through 2025 and applies to discharges of up to $750k
  • discharges related to most student loans
  • discharges for Paycheck Protection Program loans
97
Q

When a taxpayer excludes discharge of indebtedness due to performance of services, creditor gratuity, or other discharges that are excluded from gross income, what is the order in which the taxpayer must reduce their tax attributes?

A
  1. Net Operating Losses (NOLs)
  2. general business credit
  3. capital loss carryovers
  4. basis reductions

However, the taxpayer may first elect to decrease the basis in depreciable property

98
Q

What form does a taxpayer receive for discharges of indebtedness?

A

1099-C

99
Q

What is Subpart F income?

A

Income from controlled foreign corporations (CFC), from services performed in another country

100
Q

What provisions were enacted to prevent U.S. persons from deferring income recognition by shifting income to low-or no-tax jurisdictions?

A

Subpart F income provisions

101
Q

What is qualified income from controlled foreign corporations (CFC)?

A

Income from a CFC owned more than 50% by U.S. shareholders. Qualified income includes a variety of sources, but the most significant sources is foreign-base-company income (FBCI)

102
Q

Who is considered a U.S. shareholder of a CFC?

A

A U.S. person with 10% or more voting-ownership in the CFC

103
Q

Who is considered a U.S. person?

A

A U.S. citizen, resident alien, domestic corporation, partnership, estate, or trust.

104
Q

What does foreign-base-company income (FBCI) consist of?

A
  • foreign-personal-holding-company income
  • foreign-base-company sales income
    -foreign-base-company services income
105
Q

When does sales income not qualify as FBCI?

A

The sales income does not qualify if the item sold was manufactured or sold within the country of the CFC.

106
Q

When does service income qualify as FBCI?

A

The service income only qualifies if the service is performed outside the country of the CFC.

107
Q

What does specifically stated mean regarding income?

A

An item of income generally constitutes gross income unless a provision of the IRC specifically states that all or part of it is not treated as income, i.e. it is excluded.

108
Q

What are non specifically stated items?

A

Items not treated as income for federal tax purposes even though no IRC section specifically excludes them.

109
Q

What are examples of not specifically stated exclusions?

A
  • unrealized income
  • return of capital
  • loans
  • intra-family services
  • use of one’s own property
110
Q

What is unrealized income?

A

fluctuations in market value, which are not realized until the property is sold or disposed

111
Q

What is return of capital?

A

Receipt of payment of debt principal is return of capital and not income.

112
Q

What are intra-family services?

A

The value of services rendered by a person form themselves. This is not treated as income for tax purposes. The same applies for gratuitous services performed by one member of a family for another.

113
Q

Is income imputed for the economic benefit of the use of property owned by oneself?

A

No

114
Q

When are survivor benefits for public safety officers killed in the line of duty considered an exclusion?

A

If the annuity is a result of a governmental plan meeting certain requirements and is attributable to the officer’s service as a public safety officer.

115
Q

What are life insurance proceeds?

A

Proceeds of a life insurance policy paid by reason of the death of the insured. These are excluded from gross income.

116
Q

When are employer-owned life insurance contracts to be included in gross income?

A

Benefits from employer-owned life insurance contracts are to be included in gross income to the extent they exceed premiums paid.

117
Q

Are life insurance proceeds excluded from gross income?

A

Yes, regardless of form of payment or recipient.

118
Q

How is interest earned on life insurance proceeds treated regarding gross income?

A

Interest earned on proceeds (after death of the insured) is gross income to the beneficiary.

119
Q

What is considered interest income on life insurance proceeds?

A

The amount of each payment in excess of the death benefit principal amount

120
Q

What happens if the owner of a life insurance policy transfers the policy to another person for consideration?

A

The proceeds are taxable, however amounts paid to acquire the policy and subsequent premium payments are treated as return of investment capital.

121
Q

How are amounts received as accelerated death benefits under a life insurance contract for individuals who are either terminally ill or chronically ill treated?

A

They are excluded from gross income. A chronically ill person must use the funds for medical care to qualify for the exclusion.

122
Q

What is terminally ill?

A

certified by a physician that death can be reasonably expected to result within 24 months

123
Q

What is chronically ill?

A

unable to perform basic tasks

124
Q

How are dividends paid on insurance policies treated?

A

Dividends paid on insurance policies are excluded from gross income to the extent cumulative dividends do not exceed cumulative premiums and provided the cash value does not exceed the net investment, which it normally does not.

125
Q

How is interest on Veterans Administration (VA) insurance left on deposit with the VA treated regarding gross income?

A

It is excluded

126
Q

How is the nontaxable portion of an annuity determined?

A
  1. calculate the expected return, which is equal to the annual payment multiplied by the expected return multiple (life expectancy determined from an actuarial table)
  2. the exclusion ratio is equal to the investment in the contract (or its cost) divided by the expected return
  3. the current exclusion is calculated by multiplying the exclusion ratio by the amount received during the year
127
Q

What part of an annuity contract is excluded from gross income?

A

Taxpayers are permitted to recover the cost of the annuity (price paid) tax-free

128
Q

What is considered a gift?

A

A transfer for less than full or adequate consideration. The IRC excludes from the gross income of the recipient the value of the property acquired by gift.

129
Q

May a prize or award qualify for exclusion from gross income as a scholarship?

A

Yes

130
Q

When may a recipient exclude the FMV of the prize or award?

A
  • the amount received is in recognition of religious, scientific, charitable, or similar meritorious achievement
  • the recipient is selected without action on his or her part
  • the receipt of the award is not conditioned on substantial future services
  • the amount is paid by the organization making the award to a tax-exempt organization (including a governmental unit) designated by the recipient
131
Q

What is a qualified employee achievement plan award?

A

A qualified employee achievement plan award is provided under an established written program that does not discriminate in favor of highly compensated employees.

132
Q

When are employee achievement awards excluded from the recipient employee’s gross income?

A

If the awards are:

  • awarded as part of a meaningful presentation for safety achievement or length of service
  • do not exceed $400 for all nonqualified plan awards
  • do not exceed $1,600 for all qualified plan awards
  • are tangible personal property
133
Q

What employee achievement plan awards are considered taxable?

A

Cash, cash equivalents, and gift cards

134
Q

When are scholarships or fellowships excluded from gross income?

A

They are excluded from gross income to the extent that the individual is a candidate for a degree from a qualified educational institution and the amounts are used for required tuition or fees, books, supplies, or equipment (not personal expenses).

135
Q

What amounts received as tuition reduction are included in gross income?

A

any amount received in exchange for the performance of such services as teaching or research

136
Q

Does a reduction of undergraduate tuition for an employee of a qualified educational organization constitute gross income?

A

NO, however the exclusion is not allowed for amounts representing payments for services (teaching or research) performed by the student as a condition for receiving the qualified scholarship

137
Q

When is student loan forgiveness excluded from income?

A

Until 2026 all student loan indebtedness may be discharged and excluded from income unless the loan is a private education loan or made by a tax-exempt organization and the debt is discharged because the student is required to provide services to the lender (the discharge is actually compensation for work provided directly to the lender).

138
Q

How are payments made by an employer to an employee or lender for student loans treated?

A

Payments made by an employer to an employee or lender (up to $5,250 per employee) during the current year on any qualified educational loan incurred by the employee for the employee’s education may be excluded by the employer from the employee’s taxable wages.

139
Q

When a taxpayer pays qualified higher education expenses during the year via a redemption of a Series EE U.S. Savings Bond, what portion is excluded from gross income?

A

A portion of the interest

140
Q

What is the exclusion rate for interest on redemption of a Series EE U.S. Savings Bond used to pay qualified higher education expenses?

A

qualified expenses / total of principal and interest (not to exceed 100%)

141
Q

How are qualified higher education expenses calculated regarding the redemption of a Series EE U.S. Savings Bond?

A

The amount of qualified expenses is reduced by the total of qualified scholarships (excluded from income), employer-provided educational assistance, expenses for American Opportunity and Lifetime Learning credits, and other higher education related benefits.

142
Q

How do expenses for higher education qualify for exclusion from gross income when paid for by redemption of a Series EE U.S. Savings Bond?

A
  • the taxpayer, taxpayer’s spouse, or dependent incurs tuition and fees to attend an eligible educational institution
  • the taxpayer’s modified AGI (MAGI) must not exceed a certain limit - it is reduced when MAGI exceeds a threshold of $85,800 or $128,650 if a joint return, the benefit is completely phased out at $100,800 or $158,650 if a joint return
  • the purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse)
  • the issue date of the bonds follow the 24th birthday(s) of the owner(s)
143
Q

What is the state and local government interest exemption?

A

Interest to a holder of a debt obligation incurred by a state or local governmental entity is generally exempt from federal income tax

144
Q

How does the state and local government interest exemption apply to private activity bonds and arbitrage bonds?

A

The interest on certain private activity bonds and arbitrage bonds is not excluded from gross income.

145
Q

What are private activity bonds?

A

Bonds of which more than 10% of the proceeds are 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

146
Q

When can interest on private activity bonds be excluded from gross income?

A

If the bond is for residential rental housing developments, public facilities (such as airports or waste removal), or other qualified causes

147
Q

How is compensation for injury or sickness treated regarding gross income?

A

Gross income does not include benefits specified that might be received in the form of disability pay, health or accident insurance proceeds, workers’ compensation awards, or other “damages” for personal physical injury or physical sickness.

148
Q

What compensation for injury are specifically included in gross income?

A
  • compensation for slander of reputation
  • damages for lost profits in a business
  • punitive damages received
  • damages received solely for emotional distress
149
Q

What happens if a judgment results in both actual and punitive damages?

A

The judgment must be allocated

150
Q

Is interest earned on an award for personal injuries excluded from gross income?

A

NO

151
Q

How are recovery of deductions treated regarding gross income?

A

If a taxpayer incurred medical expenses in year 1, deducted these expenses on the year 1 tax return, and received reimbursement for the same medical expenses in year 2, the reimbursement is included in gross income on the year 2 return in an amount equal to the previous deduction.

152
Q

Are amounts recovered during the tax year that did not provide a benefit in the prior year excluded?

A

Yes

153
Q

How much may a taxpayer exclude from a gain on sale of principal residence?

A

Up to $250,000, $500 for married taxpayers filing jointly, of realized gain on the sale of a principal residence.

154
Q

How are stock dividends treated regarding gross income?

A

Generally a shareholder does not include in gross income the value of a stock dividend (or right to acquire stock) declared on its own shares unless an exemption applies

155
Q

What are exemptions that require a shareholder to include stock dividends in gross income?

A

If one of the following exemptions applies, the value of the stock dividend is included in gross income:

  1. any shareholder can elect to receive cash or other property
  2. some common stock shareholders receive preferred stock, while other common stock shareholders receive common stock
  3. the distribution is on preferred stock - but a distribution on a preferred stock merely to adjust conversion ratios as a result of a stock split or dividend is excluded
  4. if a shareholder receives common stock and cash for a fractional portion of stock, then only the cash received for the fractional portion is included in gross income
156
Q

What is the foreign-earned income exclusion?

A

U.S. citizens may exclude up to $112,000 (in calendar year 2022) of foreign-earned income and a statutory housing cost allowance from gross income. This exclusion is in lieu of the Foreign Tax Credit. Deductions attributed to the foreign-earned income (which is excluded) are disallowed.

157
Q

How does a taxpayer qualify for the foreign-earned income exclusion?

A

The taxpayer must either be a resident of one or more foreign countries for the entire taxable year or be present in one or more foreign countries for 330 days during a consecutive 12-month period

158
Q

How is the $112,000 foreign-earned income exclusion calculated if the taxpayer is not present (or a resident of) the foreign country for the entire year?

A

The $112k limitation is prorated

159
Q

When are lease improvements excludable by a lessor?

A

The value of improvements made by the real property lessee, including buildings erected, is excludable by the lessor unless the lessee provided the improvements in lieu of rent. Income realized by the lessor from the improvements subsequent to termination of the lease is included.

160
Q

How are amounts received by a retail lessee as cash or rent deductions treated regarding gross income?

A

They are not included in gross income if used for qualified construction or improvements to the retail space.

161
Q

If an individual’s principal residence is damaged by casualty or the individual is denied access by governmental authorities to the casualty, how are insurance payments for living expenses treated regarding gross income?

A

Amounts paid to reimburse for living expenses are excluded from gross income, the exclusion is limited to actual living expenses incurred less the normal living expenses the taxpayer would have incurred during the period.

162
Q

What is the rental value of parsonage exclusion?

A

Ministers may exclude from gross income the rental value of a home or a rental allowance to the extent the allowance is used to provide a home. However, the rental value allowance is included in self-employment income when calculating self-employment tax.

163
Q

What is the foster care exclusion?

A

Amounts received in return for foster care are excluded.

REG (9 decks)

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