Gross Income Flashcards
Pass Key
Event —– Taxable – income ( FMV) & basis (FMV)
Nontaxable – income (None) & basis (NBV)
Event —– Taxable – income ( FMV) & basis (FMV)
Nontaxable – income (None) & basis (NBV)
Realization Vs. Recognition
Realization = Real world
Recognition = Recorded
e.g. when the value of the house goes up, the realized value goes up. but is only recorded when it is sold.
when can you use accrual method
and cash method
for small business
accrual - over $25,000,000 in biz
cash - under $25,000,000 in biz
Life insurance premiums
employees can exclude from income the value of life insurance PREMIUMS up to $50,000
anything above that is taxable
life insurance proceeds are tax-free ( you die and family gets the money)
- Accident, medical and health insurance(employer paid)
- De minims fringe benefits
- meals and lodging
- employer payment of employee’s educational expenses
- Qualified tuition reduction
- Accident, medical and health insurance(employer paid)
- > not taxable to employee - De minims fringe benefits
- > not taxable to employee - meals and lodging
- > not taxable to employee if for the convenience of the employer - employer payment of employee’s educational expenses
- > upto $5250 may be excluded ( per year BS/MBA) - Qualified tuition reduction
- > may exclude the tuition reduction
1) merchandise discount
2) service discounts
3) Qualified pension, profit-sharing and stock bonus plans
4) Benefit received
1) merchandise discount
- > limited to employers gross profit
2) service discounts
- > limited to 20 percentage
3) Qualified pension, profit-sharing and stock bonus plans
- > payments made by employer ( nontaxable) : put into trust account
4) Benefit received
- > taxable ( you retire and withdraw)
Flexible spending arrangements (FSAs)
can elect to have part of their salary deposited pretax into a flexible spending account designated for them.
- > like a debit card
- > forfeit funds not used within 2 and half months after year end ( Use it or lose it)
Interest Income
GR:
all interest income is taxable, unless it is specifically excluded
Taxable:
- interest paid by federal or state gov for late payment of a tax refund
- gift received to open a bank account (FMV)
Non taxable:
- State and local government bonds/obligation
- bonds of a U.S possession (e.g Guam or Puerto Rico)
- U.S Series EE Saving Bonds used for Educational Expense of self, spouse or dependent child must be sole owner of bond over 24 years when issued reduced by tax-free scholarship
Dividend Income
Schedule B
–> corporate earnings and profits - taxable dividend ( E&P = retained earnings)
–> no earnings and profit and taxpayer had basis in stock -> non taxable and reduces the basis
(Return of Capital)
–> no earnings and profits & non stock basis -> taxable capital gain income
(capital gain distribution)
Taxable Dividends = Out of E&P
Cash = amount received
property= FMV
0%, 15%, 20%
Tax- Free distributions
- > return of capital = reduced basis - non taxable
- > stock split = non taxable
-> stock dividend (unless cash or other property option - taxable fmv)
if option: taxable
if no option given: not taxable
-> life insurance dividend = non taxable
state and local refunds
-> if itemized in prior year - taxable
limited by the amount that was deducted in the prior year, not by the actual refund if refund is more than deduction
- > if standard deduction used - non taxable
- > interest on late refund is taxable
Alimony
- divorce decree 2018 and earlier
- 2019 and after
->2018 and earlier
income to ex spouse
- must be legally required
- cash ( or equivalent) ( credit card, payment of college are equivalent)
-payment cant extend beyond death of payee spouse
- cant be made to members of the same household
-payments must not designate anything other than alimony
- the spouse maynot file the joint tax return
-> 2019 and after
not income to ex spouse
Child support & property settlement
child support is not taxable
Property settlement is not taxable
IRA
you have to start taking money from IRA when you reach age 72 - required money distribution (RMDs)
Nondeductible Traditional IRA distribution:
- principal: nontaxable
- earning: taxable
Deductible traditional IRA distribution:
- principal: taxable
- earning: taxable
Qualified Distribution from Roth IRA :
(at least 5 yrs after & age 59 and a half or older, OR disabled, OR first-time homebuyer max $10k OR paid to beneficiary after taxpayers death)
- principal: nontaxable
- earning: nontaxable
Nonqualified distribution from Roth IRA
- principal: nontaxable
- earning: taxable
Penalty tax (10 %)
exception to penalty
early withdrawal (before age 59 1/2): regular tax & 10% penalty
exception to 10% penalty ( you will still pay regular tax) HIM DEAD H- homebuyer ( first time, 10k max) I - insurance ( medical) M - medical expenses D- disability E - Education A - Adoption or birth D - death
