Excluded From Gross Income

Question 1

Exclusion for Death Benefits

Answer 1

RULE:

• Receipent of life insurance proceed,
• paid by reason the death of the insured,
• can exclude the proceeds from gross income

Question 2

Sale of insurance policy

Answer 2

• If insurance policy is sold,
• purchase can exclude only the amount of proceeds that represents her purchase price + subsequent premiers that purchaser paid

Question 3

Insurance payment by installments

Answer 3

Receipent must include the interest part of the payments in gross income

Question 4

Gifts and Bequests

Answer 4

RULE:

• Property received by gift or inheritance
• is not income to donee and
• is not taxable

Question 5

How to determine if something is a gift or bequest

Answer 5

• Intent of donor = detached and disinterested generosity
• EXCEPTIONS:
  
  • From employer to employee = NOT a gift, unless:
    
    • employee is a close relative of employer; and
    • the transfer is related to the familial relationship and not the employment relationship

Question 6

Employee Achievement Awards

Answer 6

• Employees may exclude employer-provided transfers
• only if they qualify as employee achievement awards (property valued at less than $400 given during a ceremony

Question 7

Fringe Benefits

Answer 7

1. Fringe benefits are usually included in GI, unless an exclusion applies
2. Exclusions:
   
   1. Small employee discounts
   2. Diminis benefits (like office supplies)

Question 8

Interest on Governmental Obligations

Answer 8

RULE

• Gain on the sale of bonds is taxable
• Interest on US gov’t bonds is taxable

Question 9

Compensation for Injuries or Sickness

Answer 9

1. Compensation for injuries or sickness Generally excluded from income taxation
2. Includes:
   
   1. Workers’ comp
   2. Recoveries for personal injuries that are physical in nature
   3. Punitive damages are not excludable
3. Tort recovery for slander and liable are not excludable
4. Contract judgment = not excludable
5. Compensation for both physical and non-physcial injury must be bifurcated into taxable/non-taxable

Question 10

Amounts Received Under Accident and Health Plans

Answer 10

Proceeds of health and accident policies paid by taxpayers are excluded from gross income

Question 11

Contributions by Employer to Accident and Health Plans

Answer 11

Contributions made by an employer to accident or health plans for compensation (through insurance or otherwise) to employees for personal injuries or sickness are excluded from GI

Question 12

Scholarships and Fellowship Grants

Answer 12

Amounts received by any degree candidate student from anyone as a scholarship/fellowship at an educational institution are excluded from GI

Question 13

Meals and Lodging Furnished for the Convenience of the Employer

Answer 13

The value of meals and lodging furnished by an employer is excluded from the employee’s gross income if:

1. The meals/lodging are furnished on employer’s premises;
2. furnished for employer’s conveyance

Meals or lodging have to be furnished in kind

Question 14

Exclusion of Gain on the Sale of Residence

Answer 14

Gain from the sale or exchange of property need not be included in gross income if:

1. during the 5 year period ending on the date of sale or exchange,
2. the property had been owned and used by taxpayer
3. as principal residency for periods aggregating 2 years or more

*Short, temporary absences: like absences for vacation or seasonal absences can be counted as periods of use, even if the property is rented

Question 15

Exclusion of Gain on the Sale of Residence

(Exclusion Amounts)

Answer 15

• Single persons = $250,000
• Married persons = $500,000

Question 16

Educational Assistance Plans

Answer 16

RULE:

• up to $5,250/year of employer provided educational assistance can be excluded from employee’s income, provided it is paid pursuant to a plan that is not discriminatory

Question 17

Fringe Benefits that can be excluded

Answer 17

1. No-Additional Cost Service
2. Qualified Employee Discount
3. De minimis fringe

Question 18

No-Additional-Cost Service

Answer 18

The value of a service provided by an employer to an employee may be excluded from the employee’s income if:

1. the service is offered for sale to customers in employer’s ordinary course of business; and
2. employer incurs no substantial additional cost

Question 19

Qualified Employee Discount

Answer 19

RULE:

• Small discounts are ok; if the discount is excessive (more than 20%) it will be treated as compenstation

Question 20

De Minimis Fringe

Answer 20

A benefit provided to an employee by an employer can be excluded from income if:

• its value is so small as to make accounting for it unreasonable or administratively unpracticable