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Personal Income Tax > Gross Income, Exclusions, and Deduction > Flashcards

Gross Income, Exclusions, and Deduction Flashcards

1
Q

Accident Insurance proceeds

A

Excluded

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2
Q

Annuities

A

Excluded (cost element)

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3
Q

Bequests

A

Excluded

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4
Q

Cost of living allowance (for military)

A

Excluded

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5
Q

Damages for personal injury or sickness

A

Excluded

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6
Q

Gifts received

A

Excluded

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7
Q

Group term life insurance, premium paid by employer

A

Excluded (for coverage up to 50,000)

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8
Q

Inheritances

A

Excluded

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9
Q

Interest from state and local (ie municipal bonds)

A

Excluded

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10
Q

Life insurance paid upon death

A

Excluded

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11
Q

Meals and Lodging

A

Excluded (if furnished for the employer’s convenience)

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12
Q

Military Allowances

A

Excluded

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13
Q

Minister’s dwelling rental value allowance

A

Excluded

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14
Q

Railroad retirement benefits

A

Excluded (to a limited extent)

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15
Q

Scholarship grants

A

Excluded (to a limited extent)

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16
Q

Social Seurity Benefits

A

Excluded (to a limited extent)

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17
Q

Veteran’s Benefits

A

Excluded

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18
Q

Welfare Benefits

A

Excluded

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19
Q

Worker’s Compensation Benefits

A

Excluded

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20
Q

Return of Capital

A

Excluded

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21
Q

Borrowed Funds

A

Excluded

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22
Q

Alimony and separate maintenance payments

A

Included by receiver deducted by payor

A transfer of property other than cash to a former spouse under a divorce decree or agreement is not a taxable event.
Alimony is payment in cash with an agreement that doesn’t say the payments are not alimony, and they two people are not members of the same household, ad there is no liability to make payments for any period after the death of the payee.

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23
Q

Annuities

A

Included (income element) but cost element in excluded

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24
Q

Awards

A

Included

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25
Q

Back pay

A

Included

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26
Q

bargain purchase from employer

A

Included

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27
Q

bonuses

A

Included

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28
Q

breach of contract damages

A

Included

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29
Q

business income

A

included

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30
Q

clergy fees

A

included

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31
Q

comminssions

A

included

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32
Q

compensation for serices

A

included

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33
Q

death benefits

A

included

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34
Q

debts forgiven

A

included

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35
Q

director’s fees

A

Included

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36
Q

dividends

A

Included

Dividends receive favorable treatment as compared to interest income.

If gifted, must give before declaration date. If sold, whoever has the dividend on the date of record pays the tax.

Qualified dividends are taxed at same MTR as applicable to net capital gain–maxed at 15-20 percent
Qualified dividends are not treated as capital gains in the gains and losses netting process and cannot be reduced by capital losses.
If from a foreign corp that is not trading on an established US securities market or has a specific treaty with the US, dividends from tax-exempt entities, and dividends that don’t satisfy the holding period requirements (more than 60 days during the 121 day period beginning 60 days before ex-dividend date.

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37
Q

embezzled funds

A

Included

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38
Q

Employee awards

A

Included (in certain cases)

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39
Q

Employee benefits

A

Included (except certain fringe benefits)

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40
Q

Estate and Trust income

A

Included

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41
Q

Farm Income

A

Included

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42
Q

Fees

A

Included

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43
Q

Gains from illegal activities

A

Included

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44
Q

Gains from sale of property

A

Included

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45
Q

Gambling winnings

A

Included

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46
Q

Group term life insurance, premium paid by employer

A

Included (for coverage over 50,000)

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47
Q

Hobby Income

A

Included

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48
Q

Interest

A

Included

Interest accrues daily. When gifted, the donor should recognizes his or her share of accrued income at time it would have been recognized if the donor had continued to own property. If a sale, transferor must recognize the accrued income at time of sale because accrued interes will be included in sales proceeds

49
Q

Jury Duty Fees

A

Included

50
Q

Living quarter, meals

A

Included (unless furnished for employer’s convenience)

51
Q

Mileage allowance

A

Included

52
Q

Military pay

A

Included (unless combat pay)

53
Q

Notary fees

A

Included

54
Q

Partnership income

A

Included

55
Q

Pensions

A

Included

56
Q

Prizes

A

Included

57
Q

Professional Fees

A

Included

58
Q

Punitive damages

A

Included

59
Q

Rents

A

Included

60
Q

Rewards

A

Included

61
Q

Royalties

A

Included

62
Q

Salaries

A

Included

63
Q

Severance pay

A

Included

64
Q

Strike and lockout benefits

A

Included

65
Q

Supplemental unemployment benefits

A

Included

66
Q

Tips and gratuities

A

Included

67
Q

Travel Allowance (in certain cases)

A

Included

68
Q

Treasure trove (found property)

A

Included

69
Q

Wages

A

Included

70
Q

Expenses incurred in a trade of business

A

Deductible for AGI

71
Q

part of the self-employment tax paid by a self-employed taxpayer

A

Deductible for AGI

72
Q

Unreimbursed moving expenses

A

Deductible for AGI

73
Q

Contributions to traditional IRA and certain other retirement plans

A

Deductible for AGI

74
Q

Fees for college tuition and related expenses

A

Deductible for AGI

75
Q

Contributions to HSA (health savings accounts)

A

Deductible for AGI

76
Q

Penalty for early withdrawal from savings

A

Deductible for AGI

77
Q

Interest on student loans

A

Deductible for AGI

78
Q

Ecess capital losses

A

Deductible for AGI

79
Q

Alimony payments

A

Deductible for AGI

80
Q

Personal living expenses, including any losses on the sale of personal use property

A

NONDEDUCTIBLE

81
Q

hobby Losses

A

NONDEDUCTIBLE

82
Q

Life insurance premiums

A

NONDEDUCTIBLE

83
Q

Expenses incident to jury duty

A

NONDEDUCTIBLE

84
Q

Gambling losses (in excess of gains)

A

NONDEDUCTIBLE

85
Q

Child support payments

A

NONDEDUCTIBLE

86
Q

Fines and penalties

A

NONDEDUCTIBLE, as these are against public policy

87
Q

Political contributions

A

NONDEDUCTIBLE, as this might encourage abuses and enable businesses to have undue influence on the political process.

88
Q

Certain passive losses

A

NONDEDUCTIBLE

89
Q

funeral expenses

A

NONDEDUCTIBLE

90
Q

expenses paid on another’s behalf

A

NONDEDUCTIBLE

91
Q

capital expenditures

A

NONDEDUCTIBLE,
Defined–Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. Incidental repairs and maintenance of the property are not capital expenditures and can be deducted as ordinary and necessary business expenses.
it: Repairing a roof is a deductible expense, but replacing a roof is a capital expenditure subject to depreciation deductions over its recovery period.

92
Q

medical expenses

A

Itemized deduction in excess of 10% of AGI (7.5% if over 65)

93
Q

State and local income or sales taxes

A

Itemized deduction

94
Q

Real estate taxes

A

Itemized deduction

95
Q

Personal property taxes

A

Itemized deduction

96
Q

Interest on home mortgage

A

Itemized deduction

97
Q

Investment interest

A

Itemized deduction (to a limited extent)

98
Q

Charitable contributions

A

Itemized deduction (within specific percentage limitations)

99
Q

Casualty and theft losses

A

Itemized deduction in excess of 10% of AGI

100
Q

Union dues

A

Itemized deduction in excess of 2% of AGI

101
Q

Professional dues and subscriptions

A

Itemized deduction in excess of 2% of AGI

102
Q

Certain educational expenses

A

Itemized deduction in excess of 2% of AGI

103
Q

Tax return preparation fee

A

Itemized deduction in excess of 2% of AGI

104
Q

investment counsel fees

A

Itemized deduction in excess of 2% of AGI

105
Q

unreimbursed employee business expenses (after a percentage reduction for meals and entertainment)

A

Itemized deduction in excess of 2% of AGI

106
Q

What is alimony recapture and front-loading

A

Amount of alimony that previously has been included in the gross income of the recipient and deducted by the payor that now is deducted by the recipient and included in the gross income of the payer as the result of font-loading.
In the third year, the payer must include the excess alimony payments for the first and second years in gross income, and the payee is allowed a deduction for these excess alimony payments

Recapture=D+E

D=B- (C + 15000)
E= A -((B-D+C)/2 + 15000)

D=recapture from y2, E=recapture from y1, and ABC are payments in the first, second, and third calendar years of the agreement or decree (D>0, E>0).

107
Q

Medical insurance premiums paid by a self-employed taxpayer for coverage of the taxpayer, a spouse, and any dependents

A

Deducted for AGI

108
Q

Certain contributions to pension, profit sharing, and annuity plans of self-employed individuals.

A

Deducted for AGI

109
Q

$250 for teacher supplies for elementary and secondary school teachers

A

Deducted for AGI

110
Q

Legal Expenses incurred in Defense of Civil or Criminal Penalties

A

Deductible if the origin and character of the claim are directly related to a trade or business, income producing activity, or the determination or collection or refund of a tax. PERSONAL LEGAL EXPENSES ARE NONDEDUCTIBLE

FOR AGI if with ordinary and necessary expenses incurred with a trade or business or incurred in conjunction with rental or realty property held for production of income.

All other is Deductible FROM AGI

111
Q

Expenses of operating and illegal business (numbers racket)

A

Deductible, except for expenses incurred in illegal drug trafficking–where no deductions are allowed but they must use the money they earn to calculate their gross income.

112
Q

Lobbying Expenditures

A

NONDEDUCTIBLE (including the membership dues portion that go to lobbying not deductible)

UNLESS it’s for city and county governments, activities monitoring legislation, and an annual in-house expenditures (lobbying expenses other than those paid to professional lobbyist or any portion of dues used by associations for lobbying if they don’t exceed 2,000. If they do exceed 2000, the in-house expenditures cant be deducted at all

113
Q

Excessive Executive Compensation

A

Deduction of executive compensation is limited to:
1. The compensation of shareholder-employees of closely held corporations subject to the reasonableness requirement

  1. The millionaires’’ provision (for publicly traded companies) that says that an employer can deduct for the compensation of a covered executive 1 million annually. (covered employees like CEO and four other highly compensated execs)
  2. Compensation Paid to a covered executive in a TARP (troubled asset relief program) is limited to 500,000.
114
Q

Investigation of a business

A

if the expenses are for a business the tax payer either acquires or commences and the taxpayer is already in that business, then all the expenses are fully deductible. If he or she is not in that line of businesses and he doesn’t acquire or commence then it’s not deductible. If he commences but he is not in the line of business, he deducts 5,000 automatically and amortizes the remaining amount over a 180 month period.
Note: if over 50,000 there is a dollar for dollar reduction in the deduction

115
Q

Hobby losses

A

DEDUCTION FROM AGI (ITEMIZED). (so if you use the standard deduction there is no benefit to hobby losses).
If the taxpayer can show that the activity was for purpose of making a profit, then its deductible. Hobby income is deductible only to the extent of hobby income. Any activity is profit-seeking if the activity shows a profit in a t least three of any 5 prior consecutive years.

To determine the deduction (to the extent of the gross income of the hobby): expenses are deducted first to sections without specific nature to the hobby (personal taxes and mortgage interest), then under sections as if the activity had been engaged for profit, then amounts that affect the adjusted basis.

Deductions are reduced by 2% of AGI.

116
Q

Rental of Vacation Home

A

If rented for fewer than 15 days a year, it is treated as a personal residence. The rent income is excluded from gross income, and mortgage interest and real estate taxes are allowed as itemized deductions, as with any personal interest.

If primarily rental use (residence is rented for 15 days or more in a year and is not used for personal purposes for more than the greater of 14 days or 10% of total days rented), the residence is rental property. The expenses must be allocated bed between personal and rental days if there are personal use days during the year. Deduction of the expenses allocated to rental days can exceed rent income and result in rental loss (deductible)

Personal/Rental Use (residence is rented for 15 days or more and is used for personal purposes for more than the greater of 14 days or 10% of the total days rented, it is a personal/rental use residence, and the expenses must be allocated between personal days and rental days and are only allowed to the extent of rent income.
Real estate and mortgage interest first, then maintenance, utilities, and insurance, THEN if any balance is there, depreciation is allowed.

A little more…

117
Q

Expenditures incurred for Taxpayer’s benefit or Taxpayer’s Obligation.

A

Nondeductible. It would be better that someone make a cash gift to them and then they pay the tax themselves, and nobody has to pay taxes unless over the gift exclusion amount.

118
Q

Personal Expenditures

A

NONDEDUCTIBLE , except for the tax advice portion of a divorce proceeding.

Personal Income Tax (4 decks)

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