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PABar - Federal Income Tax > Basics and Gross Income > Flashcards

Basics and Gross Income Flashcards

1
Q

What are the five types of taxpayers for filing purposes?

A
  1. Single
  2. Married filing jointly
  3. Married filing separately
  4. Head of household
  5. Qualifying widow
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2
Q

How is gross income defined?

A

All income from whatever source derived.

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3
Q

What qualifies as income under Glenshaw Glass?

A

Any “accession to wealth, clearly realized, and over which the taxpayers have complete dominion.”

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4
Q

What is adjusted gross income?

A

Gross income minus above-the-line deductions

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5
Q

Is there adjusted gross income for corporations?

A

No

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6
Q

What is the tax formula?

A
  1. Gross income
    - above the line deductions
  2. Adjusted Gross Income
    - below-the-line deductions OR standard deduction
  • Personal exemptions
    3. Taxable Income

x tax rate

  1. Tax liability
  • Tax credits
    + additional taxes

FINAL TAX LIABILITY

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7
Q

If services are paid for in property, how is the property valued as compensation?

A

FMV

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8
Q

If services are paid for in services, how are the services valued as compensation?

A

FMV

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9
Q

Are contributions to retirements included in gross income?

A

Generally not, provided they:

  1. Are adequately funded
  2. Do not discriminate against highly compensated employees
  3. and guarantee employee entitlement through vesting requirements
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10
Q

Is compensation received in the form of stock and option plans included in gross income?

A

No, not at the time that the stock is purchased

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11
Q

Is restricted property subject to a substantial risk of forfeiture included in gross income?

A

No, an employee is not required to report the value of such property as income until substantially vested in the property

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12
Q

Is unemployment compensation included in gross income?

A

Generally yes

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13
Q

How is gross income calculated for a business?

A

In general, in the same way as for an individual

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14
Q

When a business makes or sells goods, how is gross income calculated?

A

Inventory at the beginning of the year
+ Costs incurred during the year
- Inventory at the end of the year

= Gross Income

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15
Q

Are gains from dealing in property included in gross income?

A

Yes

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16
Q

Are retirement distributions included in gross income?

A

Generally yes. Divided into nontaxable and taxable portions

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17
Q

Is interest income included in gross income?

A

Yes, except for

  1. interest paid on state or local obligations and
  2. interests from qualified U.S. saving bonds used to pay for higher ed
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18
Q

Are dividends included in gross income?

A

Generally yes, but qualified dividends can qualify for capital gains treatment

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19
Q

Are rents included in gross income?

A

Yes, unless from a vacation home rented for less than 15 days

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20
Q

Is a security deposit included in gross income?

A

No, unless retained

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21
Q

Are royalties from copyrights, patents, or leases included in gross income?

A

Yes

22
Q

What prizes or awards are not included in gross income?

A
  1. Employment achievement award exclusion (gold watches) if not exceeding $400 ($1600 for a “qualified plan award”)
  2. Employment recognition awards
23
Q

When are employment recognition awards excluded from gross income?

A

Excludable from gross income if:

  1. Recipient took no action to receive the award;
  2. Recipient directs award to a charitable organization; and
  3. Recipient is not required to continue providing services.
24
Q

Is illegal income included in gross income?

A

Yes

25
Q

Is debt canceled in bankruptcy included in gross income?

A

No

26
Q

Is debt canceled as a gift included in gross income?

A

No

27
Q

Are discharges of debts generally included in gross income?

A

Yes, unless there is an exception

28
Q

If a principal residence mortgage is canceled, is that included in gross income?

A

No, if sold for less than the amount of the outstanding mortgage the homeowner can elect to exclude it from gross income

29
Q

Is partnership income included in gross income?

A

Yes, as a pass-through entity, a partner must report her share of ordinary business income or loss

30
Q

How are losses calculated with respect to partnership interests?

A

They are limited to the partner’s basis at EOY.

31
Q

Is the sale of a partnership interest included in gross income?

A

Yes

32
Q

Are treasure troves, literal or not, included in gross income?

A

Yes

33
Q

When are employer-provided meals excluded from gross income?

A

If they are:

  1. for the convenience of the employer; and
  2. Provided on the employer’s business premises
34
Q

What are some employer-provided fringe benefits excluded from gross income?

A
  1. “No additional cost” services (e.g., standby flights)
  2. Qualified employee discounts
  3. Fringe like uniforms, parking spots, etc.
  4. Retirement planning services
35
Q

Is an employer-provided health plan excludible from gross income?

A

Yes, along with reimbursements

36
Q

is employer-provided group term life insurance excludible from gross income?

A

Yes, if not exceeding $50,000 in value

37
Q

Are property transfers other than cash incident to a divorce included in gross income?

A

No; treated as a gift

38
Q

What basis does the recipient receive in property transferred incident to a divorce?

A

Carryover basis

39
Q

Are alimony and separate maintenance payments included in gross income?

A

No, if pursuant to an agreement executed after 2018

40
Q

Are inheritances included in gross income?

A

No

41
Q

Are damages for personal physical injury, including settlement payments, included in gross income?

A

No

42
Q

Is compensation for non-physical injuries, punitive damages, and damages for lost business profits included in gross income?

A

Yes

43
Q

Are life insurance proceeds included in gross income?

A

No

44
Q

Are annuities included in gross income?

A

The ROI is not, but the interest is

45
Q

Are social security benefits included in gross income?

A

No, provided recipient’s income does not exceed base amount. Amounts in excess can be gross income

46
Q

Is money received as part of a contingent obligation included in gross income (Claim of Right Doctrine)?

A

Yes, but money required to repaid can be treated as a deduction in the appropriate tax year

47
Q

What kind of scholarships are included in gross income?

A

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

48
Q

When is the release of a debt not counted for gross income?

A

When done as a gift, i.e., not for exchange

49
Q

Are tax returns included in gross income?

A

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.

50
Q

When is income recognized for uncashed checks and other instruments?

A

When received; it cannot be deferred by delaying realization of the check

PABar - Federal Income Tax (4 decks)

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