Individual taxation 2.0 Flashcards
Is child support or alimony deductible?
Alimony,
only deductible if met the certain requirement
1) payment made in cash
2) payment must be terminated after death
3) payment cannot be made to someone who lives in the same household
4) made after divorce
When does alimony recapture rule apply?
if alimony payments decrease more than 15k from the previous year
What is the alimony recapture formula?
R2: (P3+15k)
R1: P1- [(p2-r2+p3)/2 + 15k]
r3: r1+r2
The payee recognizes income, the receiver will have the deduction of that amount
Are transfers between divorcing spouses taxable?
Nope, they are nontaxable
Are Annuities taxable?
no, they are excludable to help taxpayer recover previously tax investment
What is the annuities exclusion formula?
[Taxpayer investment in contract / total expected return on contract] X amount received
I/R * Recieved
What is the annuities retirement formula?
Investment in contract/ number of anticipated monthly payments
How is cancelled debt treated
1) Individual taxpayer -> taxable
2) When seller cancels debt -> buyer can reduce property basis to avoid income recognition
3) Shareholder cancellation of corp debt is treated as a contribution of capital
Are compensatory damages or punitive damages excluded from income?
compensatory damages excluded
How are dividends taxed?
- 0% for taxpayer 15%
15% in 10% bracelt
20% for 39.6%
If property or stock is transferred, what is the basis of the new stock?
FMV
What about dividends received as a partial/complete liquidation?
treated as ROC, then cap gain
Will employee death benefits be taxed?
No
Are gifts taxable?
No, unless its income generated by a property
When is group insurance by employer taxable?
Any amount over 50k
Are Employer contributions to HSA taxable?
No, they are excludable
How much of “flexible spending account” can be carryover?
500
When can benefits for physical injury or sickness be excludable?
- Under worker’s comp
- Compensatory damages from a suit/settlement
- self purchased accident
- contribution by the employee to accident/health plans
- payments received under plan for med care
Are improvements made by the tenant ( lessee) considered income?
No, unless the improvements are made in replace of rent
Are pensions paid to retirees taxable?
No, unless they are payments made under the railroad retirement act or social security act
What is deductible from illegal drugs trafficking?
Cost of Goods Sold
When is interest received not taxable?
interest on state or municipal bonds
Are life insurance payment out through death taxable?
No, but the interest is taxable
Is the dividends on un-matured policies taxable?
No, unless the amount exceeds the premium or collected after the maturity of the policy
How do we figure out how to tax social security benefits? Facts of the case
1. 60K of social security benefits - income
2. 8.4k of benefits
3. 1k interest on tax exempt obligations
which amount of social security is excludable from blake’s taxable income
lesser of 1. .85%* of benefits received .85* 8400 = 7140 or 1. Income + interest +.5 of social security -34k +(lesser of 1/2 social security or 3400)
8400-7140 = 1260 is excludable
When is a gift/prize not taxable?
- the taxpayer is selected through action of their own
- the prize is transferred to a government/charity first
- taxpayer do not need to perform any substantial future services
- Award given for service as long as its not over 400
