Gross Income- Exclusions

Question 1

Prizes or awards are included, what is the only reason it would be excluded?

Answer 1

Civic, artistic, educational, scientific, or literary achievement that :

1) Didn’t require any action on his/her part
2) Not required to perform services
3) The amount was paid directly to a tax-exempt or governmental organization

Question 2

Scholarships need to be used for what in order for it to be excluded from income?

Answer 2

• Tuition
• Fees
• Required Supplies

Any excess amount not spent on the items mentioned above it taxed

Question 3

What are the rules for excluding life insurance proceeds from income?

Answer 3

• Received due to the death of the insured are excluded
• Accelerated death benefits from a life insurance policy can be excluded from income if the insured taxpayer is terminally ill or chronically ill.

Question 4

Are gifts and inheritances excluded?

Answer 4

They are excluded from income

Question 5

Are Social Security included in income? What are the rules?

Answer 5

Generally not included. However, provisional income exceeds up to 85% of the benefits/

Provisional income= AGI + Tax Exempt Interest + 50% of the Social Security Benefit

Question 6

Is forgiveness of debt taxed? What are the exceptions?

Answer 6

Generally it is taxed.

Exceptions:

• Forgiveness is a gift
• Taxpayer is insolvent to the extent of the insolvency
• Student Loans are excluded if the student dies