Income Tax, Fundamentals And Calculations: gross income exclusions Flashcards
Proceeds paid to a beneficiary because of death of the insured, generally exempt from income tax
Yes
Are dividends from life insurance policies, taxable income?
Not taxable income, unless the aggregate dividends received exceed the taxpayers basis in the contract
Can a business that uses life insurance to cover key employees deduct the life insurance premiums
No
If the owner cancels a life insurance policy and receives the cash surrender value, how was that tax?
Must recognize ordinary income gain to the extent the amount received exceeds the cost basis of the policy
Generally, the sum of premiums paid less dividends received
Withdrawals are loans from an insurance policy are treated on a FIFO or LIFO basis?
FIFO and are a return of basis not taxable
How are taxes treated if an existing insurance policy is transferred for valuable consideration?
Proceeds are included in gross income of the transfer to the extent the proceeds exceed basis
What are the five instances in which the transfer value will not result in inclusion and gross income?
Transfers to the insured
Transfers, to a partner of the insured
Transfers, to a partnership in which the insured is a partner
Transfers, to a corporation in which the insured is an officer or shareholder
Transfers, to a transfer basis in the policies determined by reference to the transfers basis, a gift
Viatical and Life Settlements
How are amounts received under the sale of a life insurance contract on the life of a terminally ill or chronically ill individual taxed
Excluded from gross income
Terminally ill: certified by physician reasonably expected to result in death within 24 months
Chronically ill: unable to perform at least two activities and daily living for at least 90 days
What is the seven pay test for a modified endowment contract?
Premium paid during the first seven years of the contract exceed the total of the net level premiums that would have been paid if the policy provided for paid up benefits after the seventh year
How are withdrawals are loans treated from a modified endowment contract (MEC)?
Last in first out (LIFO)
Withdrawals including loans are taxed to the extent of earnings subject to 10% penalty if which wrong before age 59 1/2
How are the premiums paid by the employer for accident health and disability policies treated by the employer and the employee for tax purposes?
Deductible by the employer
Excluded from employees income
If the taxpayer pays the cost of a disability policy with after tax dollars, how are the benefits received treated for tax purposes?
Not taxable
If the employer pays the disability policy premiums, the benefits are taxed how?
Benefits are taxable
How are taxes of the benefit treated if the employer and the taxpayer each pay portion of the premium of disability insurance?
Is a fractional allocation to the non-tax benefits based on contributions to the plan
Are contributions made by an employer to a medical savings plan or health savings account included in employees income?
No
Is free lodging, an employee benefit that is excluded from income?
Only if employee is required to accept it as a condition of employment, will it be excluded?
