Chapter 3 - Gross Income Inclusions Flashcards
Alimony is an “above the line” tax deduction for the…
payer.
Alimony is included in the gross income of the _____________ to the alimony income.
recipient
In order for a payment to be considered alimony, there has to be a…
written agreement between both parties.
In order for a payment to be considered alimony, it has to be made in…
cash payments. An exchange of property is not considered alimony.
Can ex-spouses live together or file a joint tax return for payments to be considered alimony?
No
Alimony payments can not continue beyond the recipients…
death.
Can child support payments be considered alimony?
No. Payments are not designated as child support.
Alimony payments will be considered “excess” if they violate the…
front loading rules.
With respect to alimony payments, front-loading rules are triggered if there is a drop of more than ____________ in alimony in either the second or the third year after a divorce.
$15,000
A recapture occurs only in the _______ year the alimony payment is made.
third
What is the recapture formula for excess alimony payments?
Income = (Year1 + Year2) - (2 x Year3) - $37,500
If you transfer a life insurance policy to Kristen after a divorce, you will ______ receive a deduction and Kristen will ______ be taxed on the policy.
not
Why? Because the transfer is considered a property settlement.
If you transfer a life insurance policy to Kristen after a divorce and you continue to pay the premiums on the life policy, then…
you will be able to deduct that money as alimony on your taxes.
What is the “only” way you can get a deduction for the premiums you pay on a life insurance policy?
If I transfer ownership to Kristen.
Child-support payments are ________ deductible by the paying father.
never
Excess alimony payments are never done using…
pro rata.
The interest portion of an annuity payment is taxed as…
ordinary income.
The “return of capital” (your own money) portion of an annuity payment is given…
tax-free.
If I buy an annuity and I outlive my life expectancy, the payments made after the date that I am “supposed” to die will be taxed…
100%.
If I buy an annuity and die prior to my life expectancy, the money I did not get back can be…
deducted on my tax returns.
What is the exclusion ratio for an annuity payment?
(Investment - Any Refunds)/Expected Return
If an annuity has a refund feature, the refund is subtracted from the…
money you put into the annuity.
If you purchased an annuity contract before 1982, your recovery basis will be…
first-in and first-out.
If you purchased an annuity contract after 1982, your recovery basis will be…
last-in, first-out.
Only the “taxable” portion of an annuity withdrawal is subject to the ______ early withdrawal penalty.
10%
You won’t have an early withdrawal penalty on your annuity contract if you are…
1- 59 1/2 or older
2- distribution happens after death or disability
3- distributions made prior to 1982
4- distributions from an immediate annuity
Johnny has a remaining life expectancy of 20 years. In the current year, he purchased an immediate non-refund life annuity for $20,000. The annuity will pay him $100 per month. The taxable portion of each annuity payment is:
A. $0
B. $200
C. $1,000
D. $1,200
(Investment - Any Refunds)/Expected Return
($20,000)/(($100x12)*20) = 83%
.83 x $1,200 = $1,000
$1,200 - $1,000 = $200
For employers who offer Group Term Life Insurance, this coverage is _______________ for income tax purposes.
deductible
Group term life insurance is govern by Section ____ of the Internal Revenue Code.
Section 79
The first $__________ of Group Term Life Insurance is _________ for employees.
$50,000
tax-free
Any paid premium over that amount is taxed but only the portion of the premium that is over the $50,000.
What are employer requirements to be able to offer Group Term Life Insurance?
1- SF has to own the policy
2- death Benefit must be exclude from SF’s gross income
3- All SF employees must be able to participate; cannot discriminate
If a company offers Group Term Life Insurance and has less than 10 employees, then they can offer…
1- a percentage of your salary as a death benefit
2- flat dollar amount as a death benefit
3- staff classification, and give the benefit to certain people
SF can offer Group Life Insurance to those who offer evidence of insurability through a…
medical questionnaire completed by the employees.
Johnson Company maintains a Group Term Life Insurance for its employees. Tom, a 44 year old employee, is provided with $600,000 of coverage under the plan. The IRS Table I cost of $1,000 protection per month in his age bracket is 10 cents. Tom contributes $400 per year toward this coverage. The amount that would be included in Tom’s gross income is:
A- $0
B- $185
C- $250
D- $660
C- $260
$600,000 - $50,000 = $550,000 (First $50k is non-taxable)
( $550,000 / $1,000 ) x $0.10 x 12 months = $660
$660 - $400 (the amount Tom contributes ) = $260
When a company transfers property (stock, Life Insurance, etc) to someone, like an employee, in exchange for their services. On top of that, the company says you can’t cash in the property unless you work with company for 3 additional years.
restricted property plan
Section 83 states that an employee can report income when the income is no longer at a substantial risk of…
forfeiture.
Under Section 83, when is an employer able to deduct restricted property?
As soon as the employee finally cashes in on the restricted property.
When rights to your income is limited, such as the requirement of stock to be returned if you leave the company within 3 years, don’t meet performance goals, or company earnings don’t increase.
substantial risk of forfeiture
An election to report the income from stock and pay the taxes immediately on restricted property.
Section 83(b)
Section 83(b) must be filed within ____ days of receiving the restricted property.
30
The option to defer the income is lost.
Section 83(b)does not remove the…
restriction of the property and will still have the waiting period to be sold.
Restricted property is taxed at the ________ as…
FMV
ordinary income.
Front-loading rules for excess alimony do not apply if either spouse…
remarries before the end of the third whole separation year.
Annuities are taxed at ___________ rates.
ordinary income
A terminally ill insured is one who has been certified by physician as having less than _____ months to live.
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