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?
How much can an employee exclude for child independent care services provided by their employer
Up to $5000
Is childcare provided under a cafeteria plan eligible for the dependent care credit?
No
If your employer pays your health club dues, is that taxable income?
Yes
What amount of educational assistance are you able to exclude from your income from an employer?
$5250
Both undergraduate and graduate education
Cannot discriminate in favor of highly compensated employees
Are benefits under employer cafeteria planned taxable?
No, unless the employee chooses the cash equal to the cost benefit, then that is included in income
How are no additional cost services of fringe benefits, treated for tax purposes
Excluded from income as long as they are in line of business and no additional cost occurred
What are De minimus fringe benefits?
Benefits so small that accounting for them is impractical
Are occasional tickets to cultural or sporting events included in income from an employer?
No, they are excluded from income, but not if they are season tickets
Employer benefit payment to reimbursements adoption expenses occur in the adoption, may be excluded from the employees gross income up to what amount?
$16,810 and 2024
What requirements must be met to exclude employer, adoption benefits from gross income?
Employer has a written adoption assistance plan
Does not discriminate
5% or less of total payments made each year by the plan go to shareholders, owning more than 5% of the company stock
Employees are given adequate notice of their eligibility to participate in the plan
Payments are reimbursements are traceable
Can the adoption exclusion and the adoption credit be used for the same adoption?
Yes, as long as the combination doesn’t exceed the limit amount or produce a double benefit
The adoption exclusion is phased out at what AGI level
$252,150 - $292,150
Is an employer provided auto a taxable fringe benefit?
Yes
A taxpayer may elect to exclude interest on series EE and series I US government savings bonds from gross income if the bond proceeds are used for what?
Qualified higher education expenses
As long as the bonds are issued after December 31, 1989, and they are issued to an individual who is at least age 24
What is the exclusion amount when using series EE and series I US government savings bonds?
Exclusion is limited by a modified AGI threshold
142,200 on a joint return and is completely phased out at 175,200
96,800 to 111,800 single
What is section 1202 qualified small business stock? (QSBS)
Non-corporate investors can exclude up to 50% of the gain they realize on qualified small business stock
Remaining gain is taxed at the 28% capital gains rate
Gain on qualified small business stock if acquired after September 28, 2010 is 100% excludable if a five year holding period is met
Exclusion is limited to greater of $10 million or 10 times the taxpayers basis in the stock
If a lender forgives a borrowers debt, what must the borrower report for tax purposes?
It must be included in income, does not apply to bankrupt and insolvent taxpayers
Coverdale education savings accounts
What is the most you can put in per beneficiary and what are the phase out ranges?
$2000
Single $95,000 - $110,000 MAGI
Married filing jointly $190,000 - $220,000
May a taxpayer contribute to both a Coverdale savings account and a qualified tuition plan (529 plan) for the same beneficiary in the same year?
Yes
Coverdale education savings account distributions must be used to pay for what qualified education expenses?
Tuition, fees, books, supplies, equipment, special need services, room, and board if student attends at least half the year
Coverdell Education Distributions must be done before what age?
Age 30 then earnings are taxable and subject to a 10% penalty
Maybe rolled over free of taxation and penalty to a new beneficiary who is a member of the same family
What are the eligible educational institutions that Coverdale education savings accounts can be used for?
Any accredited post, secondary schools, offering associates, bachelors, or graduate level and professional degrees vocational schools are generally eligible
Public private or religious elementary and secondary schools are also eligible
Distributions from a 529 plan (qualified tuition plans) are excluded from gross income if the distributions are used to pay for what?
Qualified higher education
Elementary
Secondary
Public
Private
Religious schools
Qualified tuition plans (529 plan)
What is the limit per student for grades K through 12?
$10,000 per year
May qualify tuition plan (529 plan), be rolled over free of taxation and penalty to the account of a new beneficiary who is a member of the same family?
Yes, It is not considered a distribution
