Class 04.

Question 1

what is the GI formula?

Answer 1

1. GI
2. (minus) AGI deduction
3. = AGI
4. (minus) greater of SD or itemized (“from AGI”) deduction
   SD =
   ID =
5. = taxable income
6. tax liability (ref. the schedule)
7. (minus) tax credits / pre-payments
8. final tax liability

Question 2

how are dividends taxed?

Answer 2

at the preferential rate

Question 3

what is considered in recognition?

Answer 3

1. economic benefit
2. realization
3. recognition

Question 4

what is economic benefit?

Answer 4

net worth inc. (assets inc. or liability going down)

Question 5

what is realization?

Answer 5

engagement in a transaction

Question 6

what is recognition?

Answer 6

when there aren’t tax exclusions/deferral

Question 7

what is the tax basis?

Answer 7

cost of an asset

Question 8

how does the tax basis affect income?

Answer 8

it’s excluded from realized income + transaction costs

Question 9

what is the tax benefit rule?

Answer 9

a refund for an expense deducted in a prior year (the net refund is taxable)

Question 10

what is a claim of right?

Answer 10

reported income received in prior years that can be deducted if repaid (opposite tax benefit)

Question 11

when do you recognize income?

Answer 11

cash + accrual + hybrid method (always based on the FMV)

Question 12

what are characteristics of the cash method?

Answer 12

1. FMV of cash/property/services included in GI
2. when income’s earned doesn’t matter, only when cash appears

Question 13

what is constructively received?

Answer 13

1. made to the taxpayer
2. without substantial restriction

Question 14

why is constructively received used?

Answer 14

prevents delay of recognized income

Question 15

what is the accrual method?

Answer 15

cash/property is accounted when earned

Question 16

what is considered earned?

Answer 16

all events passed to gain rights to income + amount can be determined

Question 17

what is the claim of doctrine?

Answer 17

it is the amount received even while income is disputed (deduct only once you refund)

Question 18

when is prepaid income taxed?

Answer 18

the year of receipt (immediately)

Question 19

when can you get a deferral?

Answer 19

for goods/services delivered in advance of receiving payment

Question 20

what is alimony?

Answer 20

payment between 2 ex-spouses

Question 21

what is not alimony?

Answer 21

1. property divisions
2. child support payments
3. separate spouses can’t live together

Question 22

who can get an AGI deduction for a divorce?

Answer 22

finalized cases 2019 + prior

Question 23

what if the divorce allows an AGI deduction?

Answer 23

the recipient has to note the deduction as income

Question 24

what are the characteristics of child support?

Answer 24

1. nondeductible by payor + not taxed by recipient
2. if you stop paying once the recipient dies, it’s deemed alimony (clarify this point)

Question 25

T/F: debt forgiven is considered income

Answer 25

true (unless you’re insolvent)

Question 26

what is an annuity?

Answer 26

prepaying for equal payments in the future overtime

Question 27

how is an annuity taxed?

Answer 27

a portion considered non-tax + rest considered GI

Question 28

what happens when an annuity actual > estimated?

Answer 28

estate can claim a loss in the year of death

Question 29

what happens when an annuity actual < estimated?

Answer 29

the balance is taxable (it’s GI)

Question 30

what is the exclusion amount?

Answer 30

exclusion ratio x annuity payment

Question 31

what is the exclusion ratio?

Answer 31

initial investment / expectation of return

Question 32

what is an expected return?

Answer 32

annual amount x # year payments