Gross Income Flashcards

1
Q

All interest is included in Gross Income except:
(non-taxable)

R1-22

A
  • -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
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2
Q

Dividends not included in Gross Income
(non-taxable)

R1-24

A
  • -Return of Capital = no E&P
  • -Stock Split
  • -Stock Dividend
    • unless given option for cash/property (tax at FMV)
  • -Life Insurance Dividend
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3
Q

State & Local Tax Refunds from PY received in CY
included in Gross Income or not?

R1-25

A

State & Local Income Tax refund received in CY from PY
–Itemized Deduction in PY = taxable
–Standard Deduction in PY = non-taxable
(1040 EZ)

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4
Q

Self-Employment Gross income

Expenses nondeductible on Schedule C

R1-28

A
  • -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
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5
Q

IRA distributions
include in Gross Income or not?
(taxable or not)

R1-38

A

Taxable when withdrawn/distributed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If withdrawn before age 59.5: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)

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6
Q

IRA distribution
Exception to 10% penalty tax for withdrawal before age 59.5

R1-39

A

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

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7
Q

Annuities
Include in Gross Income or not?
(taxable or not)

R1-39

A

*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

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8
Q

Rental of Vacation Home:
income or not?
(taxable or not)

R1-42

A

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
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9
Q

PALs can only be offset by PIGs unless:

Passive Activity Loss vs Passive Income Generators

R1-43

A

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

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10
Q

Workers Compensation
vs.
Unemployment Compensation

R1-46

A

Workers Comp. = exclude from Income

Unemployment Comp. = income

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11
Q

Nonqualified Employee Stock Option

R1-47

A

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.

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12
Q

Qualified Employee Stock Option

Requirements for:
Incentive Stock Option (ISO)

R1-48

A

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

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13
Q

Qualified Employee Stock Option

Requirements for:
Employee Stock Purchase Plans (ESPP)

R1-49

A

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

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14
Q

ISO

R1-48

A

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

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15
Q

ESSP

R1-49

A

Employee Taxation:

  • -not taxable
  • -CG(L) when sold
    • ord. inc. (if holding req. not met)
  • -

Employer Taxation:
–no deduction

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