Chapter 5 In Class Notes Flashcards
Dub gave a customer list to jones. Jones company grew a lot because of it. Jones was so grateful so he gave dub a nice car. Dub looked at it as if it was a gift so it was not taxable. Jones recognized the car as a deduction because it was a business deduction. Can the car be considered a gift for dub.
No because that does not meat the definition of a gift. The case was taken to court and the car was considered as income for dub so it was taxable. A gift is given through love or affection or respect.
Gift
something transferred from one person to another through love, affection, respect.
If your parents give you a convertible after you graduate from medical school. Is this taxable for the graduate?
No because it was a gift (given through love and respect and affection.
Is a gift deductible for the giver?
No
Inheritances are tax free?
True
An inheritance is tax free to the heir because
Some of that property has already been taxed by the person that gives the inheritance.
Gifts are not taxable because?
It would be difficult to keep track off and the government doesn’t want to make revenue on people giving gifts to other family members.
A death benefit is taxable?
False. When a wife dies the government doesn’t tax the husband for death benefits from insurance because that would just be a bad policy. The guy already is sad enough.
accelerated death benefits
If you know your going to die in like 2 years and it’s said by 2 or more doctors you can get your death benefits and it is non taxable.
You can receive a damage reward for
- physical injury
- loss of business Reputation
- loss of wages
- loss of your personal reputation
- Punitive damages (treble damage)
If you get a physical injury and you get a damage award is it always deductible?
Yes
The damage award for treble damage awards is always income.
True because the Punitive ( treble) damage awards is to punish the wrong doer.
Physical injury is always deductible because.
The purpose is to restore your capital (your human capital)
The treble damage award is always income because.
The purpose is not to restore your capital, it is to punish the wrong doer
The loss of business reputation and loss of wages and loss of personal reputation are taxable or deductible?
They are usually income. The only way they would be deductible is if you relate it to the physical injury, which is always excludable.
What is workers compensation
When there’s an accident while working you can go to the state of utah and get workers compensation for injuries.
meals and logding provided as a fringe benefit to the employee. Are they excludable.
Depends
In order for the meals to meet the excludable they must meet two requirements.
- Must be on the business premises
2. They must be for the convenience of the employer, not the employee.
In order for lodging to meet the excludable they must meet 3 requirements.
- must be on the business premises
- They must be for the convenience of the employer, not the employee.
- Required as a condition of employment
Flexible spending plan
You make 3,000 a month and the employer has a flexible spending plan. Employee goes to employee and says only pay me 2700 a month and the other 300 goes to the employer in the health benefit plan. When you have noninsured medical expenses it’s better. Your not taxed on the 300. Your paying your medical expenses with non-taxed income.
No additional cost service is only tax free if (example you let somebody get on the plane on a seat that wasn’t going to be used anyway)
it does not cost the provider anything.
You as an employee can get up to a 20% discount on services you buy from employer without showing it as income?
true
small things like free movie tickets, free jazz tickets are taxable.
false they are not
Are stock dividings tax free?
Yes. There is no increase in net work. Stock dividends are where every one has 1 stock. then everyone has 2 stock. It must have been a stock split.
Foreign Earned Income exclusion
If you live in a foreign country for 330 days out of 12 consecutive months, you get an exclusion of the foreign income = 95,100
If you go to work in Great Britain for a year and you earn 100,000 in great britain how much is excludable.
95,100 for US tax purposes. You will also be taxed by Great Britain. 4900 is taxable in the US
Determine the effect on gross income in each of the following cases:Nell received $10,000 for damages to her personal reputation. She also received
$40,000 in punitive damages.
Both taxable
Orange Corporation, an accrual basis taxpayer, received $50,000 from a lawsuit filed
against its auditor who overcharged for services rendered in a previous year
Is taxable
tax benefit rule
When you take an expenses for something in the previous year and your reimbursed for that in the later year it is taxable in the later year.
Beth received $10,000 in compensatory damages and $30,000 in punitive damages in
a lawsuit she filed against a tanning parlor for severe burns she received from using
its tanning equipment.
It is taxable.
Joanne received compensatory damages of $75,000 and punitive damages of
$300,000 from a cosmetic surgeon who botched her nose job.
punitive damages are taxable and the compensation is non-taxable
Does the taxpayer recognize gross income in the following situations?
a. Ava is a filing clerk at a large insurance company. She is permitted to leave the premises
for her lunch, but she always eats in the company’s cafeteria because doing so is
much less expensive than purchasing a comparable meal at a nearby restaurant. On
average, she pays $3 for a lunch that would cost $8 at a restaurant. However, if the
prices in the cafeteria were not so low and the food was not so delicious, she would
probably bring her lunch at a cost of $2 per day.
$5 would be taxed as income every time she eats there. Not excludable because it’s not for the convenience of the employer. It’s for the convenience of the employee. If it was for the convenience of the employer it would be excludable.
Prize and Awards Rule.
Completely taxable
Scott is a resident adviser (RA) in a college dormitory and is provided with lodging
in the dormitory. He is not required to pay the $300 per month that a room costs
other students. In addition, he is paid $100 per month.
300 is not taxed, but 100 is
a. Sparrow Corporation would like you to review its employee fringe benefits program
with regard to the tax consequences of the plan for the company’s president
(Polly), who is also the majority shareholder.
a. The company has a qualified retirement plan. The company pays the cost of employees
attending a retirement planning seminar. The employee must be within 10 years
of retirement, and the cost of the seminar is $1,500 per attendee.
excludable
b. The company owns a parking garage that is used by customers, employees, and the
general public. Only the general public is required to pay for parking. The charge to
the general public for Polly’s parking for the year would have been $3,000 (a $250
monthly rate).
$10 a month is taxable.
c. All employees are allowed to use the company’s fixed charge long-distance telephone
services, as long as the privilege is not abused. Although no one has kept track of the
actual calls, Polly’s use of the telephone had a value (what she would have paid on
her personal telephone) of approximately $600.
It’s not taxable to Polly because there’s no cost for the employer for Polly to use this.
d. The company owns a condominium at the beach, which it uses to entertain customers.
Employees are allowed to use the facility without charge when the company has
no scheduled events. Polly used the facility 10 days during the year. Her use had a
rental value of $1,000
Excludable because it won’t cost the employer anything
e. The company is in the household moving business. Employees are allowed to ship
goods without charge whenever there is excess space on a truck. Polly purchased a
dining room suite for her daughter. Company trucks delivered the furniture to the
daughter. Normal freight charges would have been $750.
excludable because no additional cost to employer
f. The company has a storage facility for household goods. Officers are allowed a 20%
discount on charges for storing their goods. All other employees are allowed a 10%
discount. Polly’s discounts for the year totaled $900.
She’s taxed on the whole 20% because it is discriminatory
- LO.2 George is a U.S. citizen who is employed by Hawk Enterprises, a global company.
Beginning on June 1, 2012, George began working in London. He worked there until
January 31, 2013, when he transferred to Paris. He worked in Paris the remainder of - His salary for the first five months of 2012 was $100,000, and it was earned in the
United States. His salary for the remainder of 2012 was $175,000, and it was earned in
London. George’s 2013 salary from Hawk was $300,000, with part being earned in London
and part being earned in Paris. What is George’s gross income in 2012 and 2013?
(Assume that the 2013 indexed amount is the same as the 2012 indexed amount.)
So she makes 100,000 in US for first 5 months and then makes 175,000 in London for the rest of the year. Then she makes 300,000 the next year in Paris. She must live in a foreign country for 330 days out of any 12 consecutive month period. She did so she gets the 95,100 exclusion. She wasn’t in the foreign country for 330 days in the same year so part of the exclusion would be in the first and part would be in the 2nd year.
- LO.2 George is a U.S. citizen who is employed by Hawk Enterprises, a global company.
Beginning on June 1, 2012, George began working in London. He worked there until
January 31, 2013, when he transferred to Paris. He worked in Paris the remainder of - His salary for the first five months of 2012 was $100,000, and it was earned in the
United States. His salary for the remainder of 2012 was $175,000, and it was earned in
London. George’s 2013 salary from Hawk was $300,000, with part being earned in London
and part being earned in Paris. What is George’s gross income in 2012 and 2013?
(Assume that the 2013 indexed amount is the same as the 2012 indexed amount.)
The 700 and 350 are excludable. The rest is taxable.
- LO.3 How does the tax benefit rule apply in the following cases?
a. In 2010, the Orange Furniture Store, an accrual method taxpayer, sold furniture on
credit for $1,000 to Sammy. The cost of the furniture was $600. In 2011, Orange took
a bad debt deduction for the $1,000. In 2012, Sammy inherited some money and
paid Orange the $1,000 he owed. Orange was in the 35% marginal tax bracket in
2010, the 15% marginal tax bracket in 2011, and the 35% marginal tax bracket in
2012.
It would be considered income in 2012 because it was taxed in 2010 and then it was deducted in 2011 because the person that owed said they wouldn’t pay it. Then they said they would pay it in 2012 so it would be taxed again in 2012. It doesn’t matter what your brackets were. You won’t be reimbursed because the tax was more or less.
b. In 2011, Marvin, a cash basis taxpayer, took a $2,000 itemized deduction for state
income taxes paid. This increased his itemized deductions to a total that was $800
more than the standard deduction. In 2012, Marvin received a $1,600 refund when
he filed his 2011 state income tax return. Marvin was in the 15% marginal tax
bracket in 2011, but was in the 35% marginal tax bracket in 2012.
Marvin must include $800 of the refund in his gross income for 2012 because he received a tax benefit for the deduction in 2011. The other $800 of the refund is not included in his gross income because it did not produce a tax benefit. Marvin suffered an economic loss from the overpayment in 2011, when his marginal tax rate (15%) was lower than in the year of the recovery (35%) of the prior deduction, 2012.
