Gross Income Inclusions

Question 1

Income (broadly conceived)
- exclusions from gross income =

Answer 1

Gross Income

Question 2

Gross income
less deductions for adjusted gross income =

Answer 2

AGI

Question 3

AGI
less the greater of: _____________ or ____________
=Taxable Income

Answer 3

total itemized deductions or standard deduction

Question 4

When a taxable sale or exchange occurs, the seller is permitted to recover _______________ in the property before gain or loss is recognized.

Answer 4

basis (or adjusted basis)

Question 5

This doctrine stipulates that a transaction will not be effective for income tax purposes unless it is intended to achieve a genuine business purpose other than tax avoidance.

Answer 5

Business purpose doctrine

Question 6

This doctrine allows the IRS to look through the legal formalities of a transaction to determine its actual economic substance. If the substance differs from the form, the IRS will determine the tax consequences of the transaction on the basis of its reality rather than its illusion.

Answer 6

Substance-over-form

Question 7

This doctrine is generally well known under the colloquial term the fruit and the tree. According to a famous U.S. Supreme Court case, a taxpayer who earns income and is the source of that income (i.e., the tree) cannot assign that income (i.e., the fruit) to someone else for income tax purposes

Answer 7

Assignment of income doctrine

Question 8

This rule converts otherwise nontaxable receipts into taxable income. The most common example is when a taxpayer is reimbursed in a subsequent year, for medical expenses paid, and deducted in a previous year

Answer 8

Tax benefit rule/doctrine

Question 9

If there is no substantial limitation or restriction on a taxpayer’s right to bring the funds under personal control, the income is taxed to a taxpayer as though it had actually been received.

Answer 9

Constructive receipt doctrine

Question 10

taxable income that has not yet been received in cash

Answer 10

Phantom income

Question 11

With phantom income, the investor’s _________ is increased each year by the amount of interest income required to be recognized on the taxpayer’s income tax return.

Answer 11

basis

Question 12

Partnerships and S corporations are ____________ entities

Answer 12

pass-through

Question 13

Each partner receives a____ indicating his share of the partnership income.

Income from a general partnership on the K-1 is typically ______________ income

Income from a limited partnership is ____________ income for the limited partner

Income from partnerships is taxed ___________ at their own individual rates

Answer 13

1. K-1
2. self-employment
3. passive activity
4. to the partners

Question 14

The ____________, rather than the corporation, pay the tax on an S cor-poration’s income

Answer 14

shareholders

Question 15

Each shareholder receives a _____ indicating her share of the S corporation’s income and it is considered _________ income, not self-employment income.

Answer 15

1. K-1
2. passive activity

Question 16

Income generated by assets of an estate that is distributed from the estate to the beneficiaries is generally taxable

Answer 16

income in respect of a decedent (IRD)

Question 17

If the interest charged on the loan is less than the federal rate, the ___________ is the difference in interest determined using the federal rate and the interest determined using the actual rate.

Answer 17

imputed interest

Question 18

No interest is imputed on total outstanding gift loans in the aggregate of _________ or less between individuals, unless the proceeds are used to purchase income-producing property.

Answer 18

$10,000

Question 19

On loans between individuals greater than $_______and less than or equal to $________, the imputed interest cannot exceed the borrower’s _______________ (from all sources) for the year.

Answer 19

1. 10,000
2. 100,000
3. investment income

Question 20

if the borrower’s investment income for the year does not exceed $__________, no interest is imputed on loans of $100,000 or less.

Answer 20

1,000

Question 21

As the value of the annuity increases, the owner or annuitant does not report any income because it has not been______________________

Answer 21

constructively received

Question 22

annuities: Withdrawals (including loans) on contracts issued after August 13, 1982, are included in gross income up to total earnings (________ basis recovery).

Answer 22

LIFO

Question 23

Collections before the annuity start date on contracts issued on August 13, 1982, or earlier are subject to_________ tax treatment so that adjusted tax basis is received first and is not taxable.

Answer 23

FIFO

Question 24

fixed annuity exclusion amount = ________/_________ x _________

Answer 24

investment basis / expected return x annuity payment

Question 25

variable annuity exclusion amount = ___________ / ____________

Answer 25

investment basis / life expectancy factor

Question 26

Payments beyond projected life expectancy are _____________.

Answer 26

Fully taxable

Question 27

If the annuitant dies before life expectancy and has not completely recovered the basis, the unrecovered basis is _________ on the annuitant’s final income tax return as a ____________________________

Answer 27

1. deductible
2. miscellaneous itemized deduction.

Question 28

Employees can exclude premiums paid by their employers on the first ___________ of group term life insurance.

Partners, proprietors, and greater than ___% S corporation owners are ineligible for the exclusion.

Answer 28

1. $50,000
2. 2%

Question 29

As much as ___% of Social Security benefits may be included in gross income if provisional income exceeds
-44k MFJ
-$0 for married taxpayers who did not live apart the entire year and file separately, or
-34k for all other filing statuses

Answer 29

1. 85%

Question 30

Up to ___% of Social Security benefits are subject to taxation if the taxpayer’s provisional income exceeds
a. $32,000 for MFJ,
b. $0 for married taxpayers who did not live apart the entire year and file separately, or
c. $25,000 for all other filing statuses .

Answer 30

50%

Question 31

Provisional income is _____ from all sources plus ___% of Social Security benefits received, foreign income previously excluded, and any tax-exempt interest income.

Answer 31

1. AGI
2. 50%

Question 32

FICA consists of the _____________ and the ____________.

Answer 32

1. social security tax
2. medicare tax

Question 33

For OASDI, a tax rate of _____% is applied to wages for the employer share, and _____% for the employee share, with a base cap of ____________ also called the Social Security taxable wage base (TWB) in 2023 (indexed to changes in average wages).

Answer 33

1. 6.2%
2. 6.2%
3. $160,200

Question 34

Self-employed individuals pay a total OASDI rate of ____% on net income.

Answer 34

12.4%

Question 35

The medicare tax has _____________ for earnings.

The HI tax is _____% for both employee and employer.

SE TP’s pay ______% on net income

Answer 35

1. no ceiling
2. 1.45%
3. 2.9%

Question 36

Total self-employment taxes are _________%.

Answer 36

15.3% (12.4% + 2.9%).

Question 37

When calculating self-employment tax, the taxpayer reduces net earnings from self-employment by _____

Answer 37

7.65%

(or another method is to multiply the net self-employment earnings by 92.35%).

Question 38

The Additional Medicare Tax of _____% also applies to self-employed individuals who have a combined income greater than $200,000 if single, and $_________if MFJ

Answer 38

1. 0.9%
2. 250,000

Question 39

The 0.9% Additional Medicare Tax is imposed on the earnings __________ of the thresholds.

Answer 39

in excess

Question 40

A net investment income tax of ____% is imposed on unearned (investment) income of certain higher-income taxpayers

Answer 40

3.8%