Chapter 4 Questions Flashcards
Wife gives husband rent-free use of their former marital home. Wife is permitted an alimony deduction.
False. As of 2019, there is no alimony deduction. Even in 2018, rent-free use was not considered alimony.
Group term life insurance plans of small employers must provide the same amount of coverage to all participants.
False. Group term life insurance plans permit different coverage so long as it does not violate non-discrimination rules.
The advantage of making the Sec. 83(b) election is the opportunity to convert ordinary income compensation into preferentially taxed capital gain income.
True. Future gains in company stock can receive preferential capital gains treatment if the Sec. 83(b) election is made.
A premature distribution penalty tax is always owed on the total distribution.
False. Only the part of the distribution that is income is subject to the penalty.
A couple divorces in May, 2019. There is some flexibility in whether payments from one ex-spouse to the other can come in the form of alimony or child-support. From a tax point of view, is there an advantage to classify payments as one or the other?
No. For divorces occurring in 2019 or later, alimony and child support receive the same tax treatment.
What are the negative consequences of making an early withdrawal from a deferred annuity?
Withdrawals of income are subject to tax and penalty.
Your client, the owner of a small business, wants to increase his group term life insurance coverage from $500K to $1M (supervisors and other employees will continue to have $250K and $50K coverage, respectively). Why might you advise him against this change?
This change will violate non-discrimination rules.
