Gross Income- Other Inclusions

Question 1

Explain the tax treatment of tip income.

Answer 1

• Tips only have to be reported to employer if greater than $20 per month
• If reported to employer, tips gross income in month of reporting. Must be reported by 10th day of following month

Question 2

How is alimony taxed?

Answer 2

-Taxed to the recipient and deducted for AGI by payor

Question 3

How are payments to a former spouse not under alimony treated?

Answer 3

-As a division of property. Not taxable

Question 4

What are the requirements to qualify as alimony?

Answer 4

• Require by decree or written agreement
• Made in cash
• To or on behalf of of former spouse
• Terminate upon death of recipient
• Payor and payee can’t be members of same household

Question 5

What are the special front loading rules if alimony payments decline more than $15,000 after first 3 years of divorce?

Answer 5

(Year 2 - Year 3) - $15,000 = Recapture Amount 1

[Year 1 - (((Year 2 - RA1) + Year 3)/2)] -$15,000 = Recapture Amount 2

Question 6

What is separate property?

Answer 6

-Assets owned before marriage or acquired by gift or inheritance while married

Question 7

How are community/separate property taxed?

Answer 7

• Community property: each spouse taxed on 50% of income

- Separate property: income reported by spouse who owns property

Question 8

Is compensation for physical injury or illness taxable?

Answer 8

-No. Punitive damages are however

Question 9

Is compensation for emotional distress, employment, age discrimination, or injury to reputation included in income?

Answer 9

-Yes unless emotional distress from physical injury or illness

Question 10

What does a taxpayer receive basis for with retirement plans?

Answer 10

• After tax contributions

- Not for employer contributions nor tax deductible contributions

Question 11

What is Income in Respect of a Decedent (IRD)?

Answer 11

• Income decedent earned before death but hadn’t recognized due to accounting method
• Included in gross income of person who receives it and has same character as it would have had decedent recognized it

Question 12

How is jury duty pay treated?

Answer 12

-Included in income. If remitted to employer, for AGI deduction.

Question 13

Is unemployment compensation taxable?

Answer 13

-Yes because it is a replacement for wages.

Question 14

How are child support and property transfers under a divorce treated?

Answer 14

• Child support is not taxable nor deductible

- Property transfers not taxable. Transferor’s basis transfers to transferee