Gross Income

Question 1

How Net Tax or Refund Is Calculated

Answer 1

1) GROSS INCOME
- Above the Line Deductions
= ADJUSTED GROSS INCOME
2) - Personal Exemptions
- Itemized or Standard (whichever is greater)
= TAXABLE INCOME
3) x Tax Rate
= GROSS TAX LIABILITY
4) - CREDITS
= NET TAX LIABILITY or REFUND

Question 2

Life Insurance and Endowment Contracts

Answer 2

excluded from gross income

Question 3

Cancelation of indebtedness (in part or whole)

Answer 3

counts as gross income

Question 4

Social Security benefits IF ADD’L INCOME PRESENT

Answer 4

counts as gross income

Question 5

Unemployment benefits

Answer 5

counts as gross income

Question 6

Cost of group term life insurance where coverage is more than $50K

Answer 6

counts as gross income

Question 7

Gambling Winnings (form W-2G)

Answer 7

counts as gross income

Question 8

Reimbursements for any items which you claimed in previous year as deduction

Answer 8

counts as gross income

Question 9

Employer-Provided Educational Assistance: up to $5250

Answer 9

can be excluded; onwards counts as gross income

Question 10

Foreign-Earned Income: anything greater than $102,100

Answer 10

counts as gross income

Question 11

Alimony and Separate Maintenance Payments

Answer 11

counts as gross income (deducted from Payor)

Question 12

Child Support

Answer 12

DOESN’T COUNT as gross income (not deducted from Payor)

Question 13

Property Settlement

Answer 13

not treated as alimony (simply recorded as division of property)

Question 14

ALMOST ALL forms of INTEREST INCOME

Answer 14

counts as gross income (unless special exclusion rules apply)

Question 15

Interest on state or local bonds

Answer 15

DOESN’T COUNT as gross income

Question 16

Interest on ALL REFUNDS

Answer 16

counts as gross income

Question 17

Interest on US SAVINGS BOND: Series EE or I

Answer 17

DOESN’T COUNT as gross income if higher education was paid for during tax year

Question 18

DIVIDENDS

Answer 18

represent a share of corporate profit paid to shareholders/investors and are taxed when paid out. They are counted as (and as a result taxed at) either ORDINARY GROSS INCOME or LONG-TERM CAPITAL GAINS (also known as Qualified Dividends)

Question 19

Stock must be held for

Answer 19

more than 60 days for its dividends to taxed at the lower 15% long-term capital gain rate OR
more than 90 days if it’s a Preferred Stock

Question 20

Capital Gain Distributions or Mutual Funds

Answer 20

treated as long-term regardless of the actual period investment was held

Question 21

Reinvested Dividends

Answer 21

treated as ORDINARY and taxable in the year paid

Question 22

Incentive Stock Option or Incentive Stock Option

Answer 22

don’t count as income until the stock acquired is disposed of

Question 23

Royalties and Rental Income

Answer 23

count as ORDINARY gross income

Question 24

Income in Respect of a Decedent (IRD)

Answer 24

uncollected income for a taxpayer who passed away. Income taxed towards the beneficiary, and also counts towards the value of the estate (which is subject to a federal tax). Double taxation is mitigated by deductions.

Question 25

IRD has a transferred basis and is not stepped-up meaning

Answer 25

it’s fair-market-value isn’t calculated (as is generally the case for property acquired from decedent)

Question 26

IRDs are treated as if

Answer 26

the actual person was receiving it (401Ks, uncollected wages, interest and dividends accrued, distributions)

Question 27

Capital gains tax begins with your basis in an asset—what you paid for it and, in some cases, the cost of any capital improvements you’ve made.

Answer 27

You’ll pay capital gains tax on the difference between the sales price and your basis when you sell the property, or you may have a capital loss if the sales price is less than your basis.

Question 28

Your basis in inherited property is not what the decedent initially paid for the asset. It’s “stepped up” to the asset’s value as of his date of death, and this can make a big difference.

Answer 28

This step-up in basis applies to all inherited assets, including stocks, bonds, and real estate.

Question 29

If you inherit real estate and you live in the property for at least two years before selling it, you can realize up to $250,000 in capital gains without paying taxes on it if you’re single.

Answer 29

You must live there for that period of time however (2 years)