Class 05

Question 1

how are prizes + awards treated?

Answer 1

included in GI if you keep it

Question 2

what is the exception for prizes + awards?

Answer 2

must meet all 3:

1. awarded by a religious/charitable/civic org.
2. donated to a charity
3. recipient rewarded w/out contest

(up to $400 excluded if employer awarded for safety + service)

Question 3

how is group life term insurance treated?

Answer 3

1. the first $50K excluded
2. excess included in GI (per $1K per month) for the excess

Question 4

how is unemployment compensation treated?

Answer 4

included in GI

Question 5

how is social security treated?

Answer 5

taxable if too excess GI

Question 6

what are exclusions?

Answer 6

not reported on tax income

Question 7

how are municipal (non federal) bonds interest treated?

Answer 7

federally tax free

(the exclusion only applies to interest + any expense non-deductible)

Question 8

how are gifts + inheritance treated?

Answer 8

recipient can exclude the property value (dead or alive)
(can’t be an implied benefit)

Question 9

what is a gift?

Answer 9

transfer of property w/out consideration + compensation

Question 10

how are life insurance proceeds treated?

Answer 10

1. excluded for recipients
2. G from a cancelled plan is tax deducted

Question 11

what is the “terminally ill” insurance exception?

Answer 11

1. terminally ill (death w/in 24 months) can cancel tax-free
2. unlimited benefit use

Question 12

what is the “chronically ill” insurance exception?

Answer 12

benefits limited to long term care

Question 13

how are scholarships (and the like) treated?

Answer 13

non-taxable to the extent it’s used for tuition and related expenses
(room & board taxable)

Question 15

how are payment for damages treated?

Answer 15

money awarded is taxable but covered expenses tax free

Question 16

how are payment for property damages treated?

Answer 16

treated as a sale—so the balance of the G/L and the property’s basis value

Question 17

how are payment for personal injuries treated?

Answer 17

1. compensatory damages (med expenses) are tax free—physical injury (or mental under medical)
2. punitive damages (negligence) are taxable

Question 18

how are payment for work injury + sickness treated?

Answer 18

if you bought coverage then it’s excludable

Question 19

T/F: employer sponsored accident/health gets a double tax benefit?

Answer 19

true

Question 20

how is employer work injury + sickness treated?

Answer 20

1. tax free to employee + deductible to employer
2. used benefits included in GI unless for medical care
3. sick pay taxable if employer covers

Question 21

how are meals + lodging treated?

Answer 21

excluded if furnished by the employer + on their premise + their convenience ( > 50% employees) + employment condition

Question 22

how are cash allowances treated?

Answer 22

taxable since viewed as compensation