Gross Income - Other Inclusions

Question 1

Alimony: Who is taxed and who gets deduction to what?

Answer 1

Taxed: recipient.
Deduction: Payer for AGI.

Question 2

Child support: Who is taxed and who gets deduction to what?

Answer 2

Taxed: No one.
Deduction: No one.

Question 3

Property transfer between spouse: Is it taxable? How is the basis determined?

Answer 3

No.

Stay the same.

Question 4

What are 4 criteria to qualify as alimony?

Answer 4

1. The pmt must be in cash or expense pmt (ex: mortgage pmt).
2. The pmt must be contingent upon the life of recipient (it stops when the person dies).
3. The pmt must be required by a written agreement or decree.
4. The pmt is not child support or specifically identified as non-alimony.

Question 5

Are pmts for physical injury or physical sickness, workers compensation taxable?

Answer 5

No.

Question 6

Is unemployment compensation taxable?

Answer 6

Yes.

Question 7

Are benefits from accident and health policies taxable?

Answer 7

No.

Question 8

Are benefits from disability plans taxable? Exception?

Answer 8

No. Taxable if premiums are paid by employer and not taxed to employee.

Question 9

Are medical insurance premiums paid by employer taxable?

Answer 9

No.

Question 10

Are damages received for emotional distress, employment or age discrimination, or injury to reputation taxable?

Answer 10

Yes.

Question 11

Are benefits received under long-term care (ex: nursing home) insurance taxable?

Answer 11

No.

Question 12

Are punitive damages taxable?

Answer 12

Yes.

Question 13

Is jury duty pay taxable? Exception?

Answer 13

Yes.
If the jury pay is given to the juror’s employer who provide a regular pay for the time, then a deduction for AGI is received to offset this income.

Question 14

Are all tip income taxable? Which one must be reported to employer? When is tip taxable?

Answer 14

Yes.
Tips received as cash, or on debit/charge card. If less than $20 a month, don’t have to be reported.
Taxable at the time received if less than $20. Taxable at the time reported to employer if more than $20 (must report by 10th of next month).

Question 15

Life insurance pmt: If TP contributed to the cost of the company’s pension plan during employment, what is the tax impact for this pmt?
ex: Contributed $12,000. Life expectancy: 10yrs.

Answer 15

Will be excluded from the insurance pmts.

12,000/120months=$100 per month will be excluded from the pmt every month.

Question 16

Life ins proceeds paid by reason of death: What amount will be included in income?

Answer 16

None if paid in a lump sum.

If paid in installments, exclude (principal amount/the number of annual pmts) from the annual pmts.

Question 17

What is alimony recapture?

Answer 17

The payer must recapture alimony as gross income if alimony pmts sharply decline in the second and third year (2nd yr recapture: the alimony paid in the second year exceeds the alimony paid in the third year by more than $15,000. 1st yr recapture: 1st yr exceeds the average alimony paid in 2 and 3rd yr by more than $15,000).

Question 18

Alimony recapture ex:
1st yr: Paid $50,000. 2nd yr: Paid $20,000. 3rd yr: $0.
What is the recapture amount?

Answer 18

The excess of the yr 2 pmts over yr 3 is 20,000-0=20,000. This is 5,000 more than 15,000: 20,000-15,000. 5,000 is the 1st recapture amount.

Now, yr 2 pmt is reduced by this amount 20,000-5,000=15,000.

Average 2 and 3rd yr: (15,000+0)/2=7,500.

The excess of yr 1 pmt over 7,500 is 42,500 (50,000-7,500), which is 27,500 more than 15,000. 27,500 is the 2nd recapture amount.

Thus, total recapture in 3rd yr=5,000+27,500=32,500.

Question 19

Alimony and child support paid together: If a TP receives less than what was designated for child support, what is the tax impact?

Answer 19

The pmt is considered to be all for child support and no taxable income as alimony.

Question 20

Alimony: If alimony is set to be reduced in the future when a child reaches a certain age, what is the tax impact?

Answer 20

The amount supposed to be reduced will be considered child support today. Taxable only the total minus child support.

Question 21

What is the net investment income tax?

Answer 21

Taxpayers may be subject to the net investment income tax of 3.8% if they have significant investment income. Investment income includes taxable interest income, dividends, annuities, and certain royalties and rents.

The tax equals 3.8% of the lesser of 1) an individual’s net investment income or 2) the excess of AGI over a threshold amount. The threshold amount is $250,000 for married filing joint ($125,000 for married filing separate) and $200,000 for unmarried individuals.