Gross Income Flashcards
All interest is included in Gross Income except:
(non-taxable)
R1-22
- -Bonds/Obligations: state & local, and U.S. possession
- -Series EE (U.S. savings bonds)
a) used for Educational Expenses
b) taxpayer or joint ownership
c) taxpayer is 24+ yrs when issued
d) acquired after 1989- phased-out
- -Veterans Administration Insurance
Dividends not included in Gross Income
(non-taxable)
R1-24
- -Return of Capital = no E&P
- -Stock Split
- -Stock Dividend
- unless given option for cash/property (tax at FMV)
- -Life Insurance Dividend
State & Local Tax Refunds from PY received in CY
included in Gross Income or not?
R1-25
State & Local Income Tax refund received in CY from PY
–Itemized Deduction in PY = taxable
–Standard Deduction in PY = non-taxable
(1040 EZ)
Self-Employment Gross income
Expenses nondeductible on Schedule C
R1-28
- -Salary of sole proprietor
- -Federal Income Tax
- -Personal portion of:
a) Car, travel, vacation expenses
b) Personal meals & entertainment
c) interest expense
d) State & Local tax expense
e) Health insurance of sole proprietor - -Bad debt expense if cash basis taxpayer
- -Charitable Contributions
IRA distributions
include in Gross Income or not?
(taxable or not)
R1-38
Taxable when withdrawn/distributed
Nondeductible IRAs:
- -Roth IRA = nontaxable
- -Traditional IRA:
- principal amount = nontaxable
- accumulated earnings = taxable
If withdrawn before age 59.5:
–10% Penalty Tax + Regular Tax
(unless exceptions are met)
IRA distribution
Exception to 10% penalty tax for withdrawal before age 59.5
R1-39
H – Homebuyer (1st time) ==> $10,000 max limit
I – Insurance (medical) ==> w/ 12wks of unemp. comp.
M – Medical exp. ==> excess of 10% AGI
D – Disability (total & permanent)
E – Education exp. (higher ed.)
A – and
D – Death
Annuities
Include in Gross Income or not?
(taxable or not)
R1-39
*treat like depreciation
Nontaxable = investment/period of payout in months
-excess of this is taxable
Live Longer:
-payments exceeding payout period = taxable
Die before full recovery:
-uncollected portion is Misc. Itemized Deduction not subject to 2% of AGI floor
Rental of Vacation Home:
income or not?
(taxable or not)
R1-42
Rented itemized
Rented 15days or more:
- personal use for 14+ days or 10% of rental days
- prorate expenses between rental & personal
- rental expense = deductible to extent of rental income
- no rental loss is allowed
PALs can only be offset by PIGs unless:
Passive Activity Loss vs Passive Income Generators
R1-43
1) Mom & Pop Exception:
–must be active & own >10% of rental
–only allowed $25,000 deduction per year
-excess is CF
–Phase-Out if AGI >$100,000:
$25,000 is reduced by 50% of the difference in
rich person’s AGI - $100,000 AGI limit
2) Real Estate Professional:
- - >50% of personal service in real property &
- - >750 hours of service performed
Workers Compensation
vs.
Unemployment Compensation
R1-46
Workers Comp. = exclude from Income
Unemployment Comp. = income
Nonqualified Employee Stock Option
R1-47
Employee Taxation:
w/ Readily Ascertainable Value w/o *Taxed when: granted exercised *Ord. Income: value-cost FMV-cost Basis: exercise price+ord. inc. exercise price+ord. inc. Future Sale: CG(L) CG(L) Holding period: exercise date exercise date *if not exercised: C(L) not taxed
Employer Deduction:
-deducted in same year that employee reports ord. inc.
Qualified Employee Stock Option
Requirements for:
Incentive Stock Option (ISO)
R1-48
1 –approved by shareholders
2 –granted within 10yrs of plan
3 –option price is not 10% of Co.
5 –hold stock for 2yrs after grant, 1yr after exercised
6 –remain employee from grant date til 3mo before exercised
Qualified Employee Stock Option
Requirements for:
Employee Stock Purchase Plans (ESPP)
R1-49
1 –written & approved by shareholders
2 –not own > 5% of Co.
3 –plan includes all full-time emp. w/ >2yrs employed
4 –option price not 27days after grant date
6 –annual purchase limit = $25,000 of stock
7 –held for >2yrs after granted, 1yr after exercised
8 –remain employee from grant date til 3mo before exercised
ISO
R1-48
Employee Taxation:
- -not taxable
- -CG(L) when sold
- ord. inc. (if holding req. not met)
- -buy up to $100,000/yr. excess is nonqualifying option
Employer Taxation:
–no deduction
ESSP
R1-49
Employee Taxation:
- -not taxable
- -CG(L) when sold
- ord. inc. (if holding req. not met)
- -
Employer Taxation:
–no deduction