Becker R1

Question 1

Describe the employee taxation on non qualified employee stock options

Answer 1

1. If there is a readily ascertainable value, the employee recognizes ordinary income in that amount in the year GRANTED.
2. No readily ascertainable value, recognize ordinary income based on the FV of the stock purchase less any amount paid for the option on the exercise date.

Question 2

Describe the employer taxation of non qualified employee stock options

Answer 2

The employer may deduct the value of the stock option as a business expense in the same year the employee recognizes ordinary income

Question 3

Describe the employee taxation of incentive stock options (ISO)

Answer 3

ISO’s are not taxed as compensation.
Basis of the stock is the exercise price plus any amount paid for the option.
G/L on the subsequent sale is capital

Question 4

Describe the employer taxation of incentive stock options (ISO)

Answer 4

Employers do not receive a tax deduction for ISOs

Question 5

Describe the employee taxation of employee stock purchase plans (ESPPs)

Answer 5

Not taxed as compensation.
Basis of the stock is the exercise price plus any amount paid for the option.
G/L on the subsequent sale is capital

Question 6

Describe the employer taxation of employee stock purchase plans (ESPPs)

Answer 6

Employers do not receive a tax deduction for ESPPs

Question 7

Name the tests for claiming an exemption for a “qualifying child”

Answer 7

CARES
Close relative
Age limit (19/24)
Residency & filing requirement
Eliminate gross income test 
Support test changes

Question 8

Name the tests for claiming an exemption for a “qualifying relative”

Answer 8

SUPORT
Support (over 50%)
Under the personal exp amt of taxable gross income
Precludes depent filing a joint tax return
Only citizens
Relative OR
Taxpayer lives with individual for the whole year

Question 9

What are the requirements for a multiple support agreement

Answer 9

• Two or more people together provide more than 50% of support, but no one contributes more than 50%
• must provide more than 10% of support
• Form 2120 must be filed

Question 10

Define Gross Income

Answer 10

all income from whatever source derived, unless specifically excluded

Question 11

what are the 4 categories of individual income

Answer 11

• Oridinary
• Portfolio
• Passive
• Capital

Question 12

Name some nontaxable fringe benefits (exclusions)

Answer 12

De minimis fringe benefit
Qualified tuition reduction
qualified employee discounts
employer paid accident, medical, and health insurance

Question 13

Are life insurance premiums paid by an employer taxable to an employee?

Answer 13

Over 50,000 are included in gross income

Question 14

Give some examples of exempt interest

Answer 14

state and local government bonds
bonds of a us possession
seriess EE
Interest on veterans admin insurance

Question 15

what is the tax treatment of unearned income of a child who falls under the “kiddie tax” rules

Answer 15

parents higher tax rate

Net unearned income = childs total unearned income less the childs standard deduction of $1,000 less an additional $1,000

Question 16

State the tax treatment of property settlements in a divorce

Answer 16

the transferring spouse gets no deduction for payments made (or property transferred), and the payments are not includable in the gross income of the spouse receiving the payment or property