Basics and Gross Income Flashcards
What are the five types of taxpayers for filing purposes?
- Single
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying widow
How is gross income defined?
All income from whatever source derived.
What qualifies as income under Glenshaw Glass?
Any “accession to wealth, clearly realized, and over which the taxpayers have complete dominion.”
What is adjusted gross income?
Gross income minus above-the-line deductions
Is there adjusted gross income for corporations?
No
What is the tax formula?
- Gross income
- above the line deductions - Adjusted Gross Income
- below-the-line deductions OR standard deduction
- Personal exemptions
3. Taxable Income
x tax rate
- Tax liability
- Tax credits
+ additional taxes
FINAL TAX LIABILITY
If services are paid for in property, how is the property valued as compensation?
FMV
If services are paid for in services, how are the services valued as compensation?
FMV
Are contributions to retirements included in gross income?
Generally not, provided they:
- Are adequately funded
- Do not discriminate against highly compensated employees
- and guarantee employee entitlement through vesting requirements
Is compensation received in the form of stock and option plans included in gross income?
No, not at the time that the stock is purchased
Is restricted property subject to a substantial risk of forfeiture included in gross income?
No, an employee is not required to report the value of such property as income until substantially vested in the property
Is unemployment compensation included in gross income?
Generally yes
How is gross income calculated for a business?
In general, in the same way as for an individual
When a business makes or sells goods, how is gross income calculated?
Inventory at the beginning of the year
+ Costs incurred during the year
- Inventory at the end of the year
= Gross Income
Are gains from dealing in property included in gross income?
Yes
Are retirement distributions included in gross income?
Generally yes. Divided into nontaxable and taxable portions
Is interest income included in gross income?
Yes, except for
- interest paid on state or local obligations and
- interests from qualified U.S. saving bonds used to pay for higher ed
Are dividends included in gross income?
Generally yes, but qualified dividends can qualify for capital gains treatment
Are rents included in gross income?
Yes, unless from a vacation home rented for less than 15 days
Is a security deposit included in gross income?
No, unless retained
Are royalties from copyrights, patents, or leases included in gross income?
Yes
What prizes or awards are not included in gross income?
- Employment achievement award exclusion (gold watches) if not exceeding $400 ($1600 for a “qualified plan award”)
- Employment recognition awards
When are employment recognition awards excluded from gross income?
Excludable from gross income if:
- Recipient took no action to receive the award;
- Recipient directs award to a charitable organization; and
- Recipient is not required to continue providing services.
Is illegal income included in gross income?
Yes
Is debt canceled in bankruptcy included in gross income?
No
Is debt canceled as a gift included in gross income?
No
Are discharges of debts generally included in gross income?
Yes, unless there is an exception
If a principal residence mortgage is canceled, is that included in gross income?
No, if sold for less than the amount of the outstanding mortgage the homeowner can elect to exclude it from gross income
Is partnership income included in gross income?
Yes, as a pass-through entity, a partner must report her share of ordinary business income or loss
How are losses calculated with respect to partnership interests?
They are limited to the partner’s basis at EOY.
Is the sale of a partnership interest included in gross income?
Yes
Are treasure troves, literal or not, included in gross income?
Yes
When are employer-provided meals excluded from gross income?
If they are:
- for the convenience of the employer; and
- Provided on the employer’s business premises
What are some employer-provided fringe benefits excluded from gross income?
- “No additional cost” services (e.g., standby flights)
- Qualified employee discounts
- Fringe like uniforms, parking spots, etc.
- Retirement planning services
Is an employer-provided health plan excludible from gross income?
Yes, along with reimbursements
is employer-provided group term life insurance excludible from gross income?
Yes, if not exceeding $50,000 in value
Are property transfers other than cash incident to a divorce included in gross income?
No; treated as a gift
What basis does the recipient receive in property transferred incident to a divorce?
Carryover basis
Are alimony and separate maintenance payments included in gross income?
No, if pursuant to an agreement executed after 2018
Are inheritances included in gross income?
No
Are damages for personal physical injury, including settlement payments, included in gross income?
No
Is compensation for non-physical injuries, punitive damages, and damages for lost business profits included in gross income?
Yes
Are life insurance proceeds included in gross income?
No
Are annuities included in gross income?
The ROI is not, but the interest is
Are social security benefits included in gross income?
No, provided recipient’s income does not exceed base amount. Amounts in excess can be gross income
Is money received as part of a contingent obligation included in gross income (Claim of Right Doctrine)?
Yes, but money required to repaid can be treated as a deduction in the appropriate tax year
What kind of scholarships are included in gross income?
Tuition, books, supplies, and equipment are excluded from gross income
Room and board are included in gross income, as well as any scholarship for services rendered or to be rendered
When is the release of a debt not counted for gross income?
When done as a gift, i.e., not for exchange
Are tax returns included in gross income?
Yes, if previously deducted.
Under the Tax Benefit Rule, if an amount was deducted on a prior year’s tax return which resulted in a reduction of tax and a tax benefit to the TP, then subsequent recovery must be included in gross income the year it is received.
This cancels out earlier deductions.
When is income recognized for uncashed checks and other instruments?
When received; it cannot be deferred by delaying realization of the check
