Chapter 5: Income Tax Planning

Question 1

T/F Compensation for services must be included in gross income, regardless of what that compensation may be called.

Answer 1

True

Question 2

T/F For 2016, a qualifying citizen or resident of the United States may exclude from U.S. gross income up to 101,300 (2016) of income earned from personal services in foreign countries.

Answer 2

True.

Question 3

What qualifies an individual for income exclusion?

Answer 3

1. Must have a tax home abroad and must either: 1. qualify as bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire taxable year. or, 2. qualify by being present in a foreign country or countries for at least 330 full days during any period of twelve consecutive months.

Question 4

T/F All fringe benefits provided to an employee must be included in gross income as wages unless a specific provision of the IRC excludes the benefit from taxation or unless the employee pays fair value for the fringe benefit.

Answer 4

True.

Question 5

Nondiscrimination requirement of fringe benefit

Answer 5

There is generally a requirement that the employer not discriminate against different classes of employees.

Question 6

T/F If the nondiscrimination requirements apply and the fringe benefits is provided primarily to highly compensated employees (or key employees), and the benefit is not available on substantially the same terms to non-highly compensated (or non-key) employees, then the fringe benefit is deemed to be discriminatory.

Answer 6

True

Question 7

T/F An employee performing services in return for a fringe benefit needs to be the person who actually uses or enjoys the fringe benefit.

Answer 7

False

Question 8

Tax benefit rule-

Answer 8

If the employee took a deduction but is later reimbursed, they need to include that imbursement in income. If no deduction was taken, the reimbursement does not need to be included as income.

Question 9

Andy has Group term provided by an employer. Employer pays the premium. Policy amount = 100,000. How much is included in income if the table amount is 9 cents per 1,000

Answer 9

54 dollars

Question 10

Employee death benefits-

Answer 10

Employers sometimes pay death benefits to the spouse or family of a deceased employee

Question 11

Disability insurance-

Answer 11

Disability insurance provides benefits in the form of periodic payments to a person who is unable to work due to sickness or accidental injury.

Question 12

Cafeteria plans-

Answer 12

A cafeteria plan is a written plan under which the employee may choose to receive either cash or taxable benefits as compensation or qualified fringe benefits that are excludable from wages.

Question 13

FSA

Answer 13

A flexible spending account is a type of cafeteria plan that is funded through employee salary reductions. The employee can elect to have a portion of his salary or wages retained by the employer to fund an FSA.

Question 14

Long-Term Care

Answer 14

Long-term care insurance pays benefits when the insured person is unable to perform some of the activities of daily living.