Income Flashcards
A cash-basis taxpayer should report gross income
A cash-basis taxpayer should report gross income for the year in which income is either actually or constructively received, whether in cash or in property
Fuller was the owner and beneficiary of a $200,000 life insurance policy on a parent. Fuller sold the policy to Decker, for $25,000. Decker paid a total of $40,000 in premiums.
Upon the death of the parent, what amount must Decker include in gross income?
Decker’s cost basis is the $25,000 he paid for the policy plus the $40,000 he paid in premiums. $200,000 less $65,000 = $135,000.
treatment of jury duty payment remitted to employer in exchange for regular compensation
Deducted from gross income in arriving at adjusted gross income.
If an employer requires jury pay to be remitted in exchange for regular compensation for the period the employee was performing jury duty, the employee may deduct the jury duty pay from her gross income as an adjustment arriving at adjusted gross income.
how to determine amount of social security is excludable from taxable income.
ex: Blake, a single individual age 67, had a 2015 adjusted gross income of $60,000 exclusive of social security benefits. Blake received social security benefits of $8,400 and interest of $1,000 on tax-exempt obligations during 2015. What amount of social security benefits is excludable from Blake’s 2015 taxable income?
PI = AGI + tax-exempt interest + 50% (SSB)
PI = $60,000 + $1,000 + 50% (8,400) = $65,200.
Since PI ($65,200) exceeds Base Amount 2 ($34,000), then the taxable amount of SSB is the lesser of:
.85 x SSB ($8,400) = $7,140, or
.85 x [PI - BA2; $65,200 - $34,000) = $26,520, plus the lesser of
amount included based on the 50% formula (50% x $8,400) = $4,200, or
$4,500 (unless married filing joint, then $6,000), which provides $26,520 + $4,200 = $30,720 for part b of the formula.
Thus, the amount included in income is the lower of $7,140 or $30,720, so the amount excluded is $1,260 ($8,400 - $7,140).
when can a c corp use the cash method of accounting?
If their revenues have NOT exceeded $5m in the last 3 years. If they exceed $5m they must use accrual method
who must use accrual method?(i.e. cannot use cash)
- Corporations, unless a qualified personal service corporation with gross receipts of not more than $5,000,000.
- Partnership which has a C corporation as a partner, or
- A tax shelter
Unless IRS consents, the accrual method of tax reporting is mandatory for a sole proprietor when there are
year-end merchandise inventory
Who can use the cash method?
Partnerships! As long as none of the partners are C corps
Which of the following is correct concerning the LIFO method (as compared to the FIFO method) in a period when prices are rising?
Current tax liability is lower and cost of goods sold is higher.
If prices are rising and LIFO is used then the cost of inventory, and therefore the total for costs of goods sold, will be higher. If costs of good sold is higher then taxable income will be lower, which also means that the current tax liability will be lower
is interest on overpayment of fed taxes includable in income?
yes fully
Calculation of income with group term life insurance (fringe benefit)
** FIRST 50,000 OF BENEFIT IS TAX FREE!! **
Salary + {[(life insurance $$ - 50,000)/$b]*$a}
Question will include “IRS established uniform cost of insurance is $a per $b)
cafeteria plan
Cafeteria plans allow employees to select from a menu of fringe benefits and cash and not include the value of the nontaxable benefits in their gross income. The requirements of cafeteria plans are:
1) all participants must be employees;
2) participants may choose between two or more benefits composed of cash or qualified benefits;
3) participants are required to make elections among the benefits;
4) the plan must be in writing and have certain specified information;
5) the plan may not provide participants with deferred income, except for under 401(k) plans.
individual tax payer with rental properties - how are rent/damage deposits treated?
Not included in income unless they are not returned to the tenant. Then the amount would be included in the year the money was not returned (i.e. when the tenant moves out)
are state and federal tax refunds for overpayments included in income?
State refunds are if the taxpayer ITEMIZED!
Is interest on EE bonds included in income?
The accrued interest on redeemed Series EE US savings bonds can be excluded from gross income to the extent that the aggregate redemption proceeds (principal plus interest) are used to finance the higher education expenses (tuition and fees) of the taxpayer, taxpayer’s spouse, or dependents.
If not for a dependent, the interest is included in income
