Gross Income

Question 1

What is gross income?

Answer 1

All income from whatever source derived.

Question 2

What case defined income?

Answer 2

Glenshaw Glass.

Question 3

What is income?

Answer 3

1. An accession to wealth
2. that is clearly realized
3. over which the taxpayer has complete dominion

Question 4

What is an accession to wealth?

Answer 4

Anything that makes you richer than you were before!

Question 5

Is a loan an accession to wealth?

Answer 5

No, it doesn’t actually make you richer because it’s offset by the debt you now owe.

Question 6

What does “clearly realized” mean?

Answer 6

You cashed in on the wealth. So selling your home at a profit is “clearly realized,” but just having a home whose value has gone up is not “clearly realized.”

Question 7

What does “complete dominion” mean?

Answer 7

That the taxpayer has control over the property. You can do whatever you want with it.

Question 8

What are examples of gross income?

Answer 8

1. Wages (or other compensation for services)
2. Income from business
3. Gains from dealing in property
4. Distributions from retirement plans
5. Interest
6. Dividends on corporate stock, whether received as cash or property
7. Rents
   
   1. EXCEPT security deposits and <15 days of vacation home rental
8. Royalties
9. Prizes and awards
   
   1. EXCEPT a <$400 gift for longevity/safety of an employee
   2. EXCEPT a prize donated to charity
10. Illegal income
11. Cancellation of debts
    
    1. EXCEPT “B GRIPE”
       
       1. Bankruptcy
       2. Gift
       3. Residence debt (mortgage reduced/waived because of the financial crisis
       4. Insolvency
       5. Price adjustment
       6. Education loan
12. Treasure trove
13. Recovery of prior deduction
14. Damages
    
    1. EXCEPT personal injury damages
15. Amounts received under a claim of right
    
    1. You get a $1,000 bonus but then they say nvm we only meant to give you $500. You have to report the $1,000 for the year you received it, though you might get a deduction for the amount you repaid, in that year.

Question 9

What are the eight major groups of stuff that will not be included in gross income?

Answer 9

1. Certain employer-provided benefits
2. Property Transfers incident to divorce
3. Gifts and Bequests
4. Damages for physical injury and physical sickness
5. Life insurance proceeds
6. Qualified scholarships
7. Growth of (and distributions from) qualified tuition program (§ 529 plans)
8. Gain from sale of principal residence

Question 10

What employer-provided benefits will not be considered gross income?

Answer 10

1. Meals furnished for the convenience of the employer on the employer’s business premises
   
   1. Must be actual meals, for the convenience of the employer, on the employer’s business premises.
2. Lodging furnished for the convenience of the employer on the employer’s business premises that the employee is required to accept.
3. No-additional cost services
   
   1. Standby flight tickets, free hotel rooms based on availability
4. Qualified employee discount
   
   1. Cannot exceed 20% of the service cost OR the gross profit margin for goods
5. Working condition fringe
   
   1. Something the employer provides to the employee that the employee would be able to deduct if they bought it themself.
6. De minimis fringe
   
   1. Shit that just isn’t worth the administrative hassle of making people keep track of
7. Employer-provided healthcare
8. Employer-provided life insurance

Question 11

When are gifts excludable?

Answer 11

Always, up to no limit! As long as you are the donee.

Question 12

What is a gift?

Answer 12

Per Duberstein, a transfer made with detached and disinterested generosity, made out of charity, affection, respect, admiration, or like impulses.

All about the donor’s intent!

Question 13

What does “basis” mean and how does it affect one’s gross income?

Answer 13

Basis is basically the starting value of a gift you receive. If you get property as a gift, you get it with “carry-over basis.”

If grandma gives you her house that she bought for $10,000 and you sell it for $100,000, the $10,000 basis will not be income, but the $90,000 will be.

Question 14

How does the donor being dead/alive affect the donee’s tax liability?

Answer 14

If they’re alive, then you get a carry-over basis (difference between sales price and donor’s purchase price is income.

If they’re dead (you get it through a will), then the basis will be the fair market value on the date of their death.

Question 15

What is physical injury or physical sickness?

Answer 15

To be excluded from income, damages must be for either a physical injury or a physical manifestation of an emotional injury. Emotional injury alone is insufficient and will be income.

Question 16

Are the proceeds from a life insurance plan income to the beneficiary?

Answer 16

No, UNLESS

1. you buy the policy and then cash it out, then whatever payout you get is income (EVEN IF it exceeds what you paid in!)
2. you sell your life insurance policy to somebody else and they name themself as the beneficiary
   
   1. only tax-free up to the amount the purchaser paid you for it.

Question 17

What scholarships will not be taxable?

Answer 17

Qualified scholarships: cover tuition, books, supplies, and equipment used in classes.

N.B.: Tuitions covering room and board and travel are not excludable! If a scholarship covers qualified and unqualified stuff, split it up and tax appropriately.

Question 18

What is a qualified tuition program?

Answer 18

A vehicle by which you can make tax-free contributions to an education plan. No taxes due if you use the money to pay for higher education, even if the value goes up in the interim.

Question 19

When will a sale of property be excludable?

Answer 19

Only if:

1. you’re selling your principal residence
2. you’ve lived there for at least two years of the last five years
3. you’re excluding only up to $250,000 for an individual or $500,000 for a married couple filing a joint return, AND
4. you have not used this exception within the past two years.