Gross Income

Question 1

Working condition fringe

Answer 1

Excluded from gross income

Employer provides a required item that employee would have been able to deduct if they had to but it themself

Example: uniform

Question 2

Prizes and Awards

Answer 2

Gross income

Like game show winnings

Exceptions: Employee achievement awards (tangible personal property given to employees in recognition of length of service); and Prizes donated to charity

Question 3

Gain from Sale of Principal Residence

Answer 3

Excluded from gross income

Excludes $250,000 of gain from gross income when you sell principal residence ($500,000 for married couple)

Requires:

(1) Two-year ownership and use: seller owned and uses home as a personal resience for two of the five prior years
(2) Can only claim exclusion once every two years

Question 4

Qualified Scholarships

Answer 4

Excluded from gross income

Qualified: covers tuition, books, supplies, equipment

Does not cover: room, board, travel

Question 5

De minimis fringe

Answer 5

Excluded from gross income

If an employer provides a benefit that is of such little worth that making the employee account for it and report it on a W2 is more hassle than it is worth

*Examples: free photocopies, soda and snacks, holiday ham

Question 6

Contributions to the Capital of a Corporation

Answer 6

Excluded from gross income

Money or property paid to the capital of a corporation is excludable as gross income and not taxable to the corporation

Question 7

Gross Income

Answer 7

All income from whatever source derived; apply Glenshaw Glass analysis to determine what this means

Question 8

Gifts–what is your basis?

Answer 8

You take the gift with a carryover basis: whatever basis the donor had in the property

Question 9

Qualified Employee Discount

Answer 9

Excluded from gross income

20% maximum for services; gross profit margin for goods

Question 10

Treasure Trove

Answer 10

Gross income

Found property that you are entitled to keep; example: you bought a piano and it had $$$ in it

Question 11

Income from business

Answer 11

Gross income

Question 12

Interest

Answer 12

Gross income

Think of it as rent for the use of money

Question 13

Amounts recieved under a claim of right

Answer 13

Gross income

You get paid a bonus at the end of the year, and then are told it was too much and you have to pay it back at the beginning of the next year. The whole amount still counts as gross income

Question 14

Employer Provided Lodging

Answer 14

Excluded from gross income

Furnished for the convenience of the employer on the employer’s business premises, which the employee is required to accept

Example: on site property manager

Question 15

Gifts and Bequests

Answer 15

Excluded from gross income

May exclude amount of all gifts and bequests–no dollar limit

Definition of gift (Duberstein): transfer made with detached and disinterested generosity, made out of afflection, respect, admiration, charity, or like impulses.

• Based on what the donor was thinking
• If there is expectation for quid pro quo return then its not a gift

Question 16

Distributions from retirement plans

Answer 16

• Gross income*
  e. g., pensions

Question 17

Employer provided no additional cost service

Answer 17

Excluded from gross income

Example: airline allows employee free stand by ticket

Question 18

Damages

Answer 18

Gross income

Generally compensatory damages are included in gross income, with the exception of personal injury

Question 19

Property Transfers Incident to Divorce

Answer 19

Excluded from gross income

Generally within one year of marriage termination

Question 20

Rents

Answer 20

Gross income

Recieved from renint out property

Exceptions: deposits; income from a vacation home if you rent out for less than 15 days per year (also do not get to deduct expenses)

Question 21

Employer provided Life Insurance

Answer 21

Excluded from gross income

Amount employer pays on the employee’s behald does not need to be included in the employee’s gross income

Question 22

Employer provided meals

Answer 22

Excluded from gross income

Meals (cash vouchers do not count)

furnished for the convenience of the employer (enables workers continue working rather than taking a break to eat)

on the employer’s business premises (like cafeteria)

Question 23

Damages for Physical Injury or Sickness

Answer 23

Excluded from gross income

Damages for physical injury or physical manifestation is excluded; mere emotional distress will not be excluded

Question 24

Cancelation of Indebtedness

and 6 Exceptions

Answer 24

Gross income

When you are released from an obligation to pay a debt/ loan

Exceptions:

(1) Bankruptcy: if debt discharged in bankruptcy proceeding there is no gross income
(2) Insolvency: taxpayer’s liabilities exceed value of the taxpayer’s assets
(3) Gift: forgiveness or termination of debt is really a gift, like family member said you dont have to pay back loan
(4) Price adjustment: like renegotiate the price for a property you bought
(5) Education loan: loan forgiveness
(6) Residence debt: personal home mortgage reduction or forgiveness

Question 25

Glenshaw Glass

Answer 25

Income is:

(1) An accession to wealth;
(2) Clearly realized;
(3) Over which the taxpayer has complete dominion
(1) You are richer as a result
(2) Cahing in or severence from main benefit: profit after you sell your home
(3) You have control over the property, so like not just holding as a bailee

Question 26

Royalties

Answer 26

Gross income

like on a textbook you wrote

Question 27

Growth of Qualified Tuition Program

Answer 27

Excluded from gross income

529 Plans: tax-favored vehicle for making tax-free contributions to the plan; can grow in value without paying tax

If you use the money for higher education expenses, then you do not have to include the distributions in gross income

Question 28

Gains from dealings in property

Answer 28

Gross income

selling property as a profit

Question 29

Dividends

Answer 29

Gross income

Dividends on corporate stock, whether recieved in cash or property

Question 30

Employer provided Healthcare

Answer 30

Excluded from gross income

Amount employer pays on employee’s behald does not need to be included in employee’s gross income

Question 31

Compensation for services

Answer 31

Gross income

Includes compensation in the course of employment, as an independant contractor, as seller of your services regardless of status.

Can be cash or tangible property

*Exceptions: contributions to retirement plans; unemployement less thatn $2,400

Question 32

Illegal Income

Answer 32

Gross income

Question 33

Recovery of Prior Tax Deduction

Answer 33

Gross income

Tax benefit rule: if you deducted an amount you paid in taxes, and then the next year there is a new law that refunds that money back to you, now you have to inclue in gross income because you had previously deducted it

Question 34

Life Insurance Proceeds

Answer 34

Excluded from gross income

If you purchase a life insurance contract and the death benefit paid to a recipient, then the recipient does not have to include the life insurance proceeds in gross income

Exceptions:

(1) Surrender: if during the policy’s lifetime (before you die) you surrender the policy, that surrender may be taxible if the amount you recieved from the insurance company exceeds your total basis
(2) Transfer for value: where you sell your life insurance policy to someone else and that person names themself as teh beneficiary of the policy any amount that the buyer recieved from the policy in excess of what they paid you for the policy is includable in gross income

Question 35

Bequest–what is your basis?

Answer 35

When you recieve a bequest from a decedent’s estate you get the property at a “stepped-up” basis–its fair market value