Individual Taxation - Recognition of Income Flashcards
When is dividend income to be recognized for a taxpayer?
At the earlier of actual or constructive receipt.
This means that if a corporation’s payment date is 12/30/x1 but the taxpayer doesn’t receive the dividend in the mail until 1/2/x2, the taxpayer will still recognize the dividend income in their return as of x1.
What is the difference between realized and recognized income?
For income to be realized there must be a transaction which gives rise to the income
For income to be recognized the transaction must be a taxable event, not a transaction for which non-recognition is provided in the Internal Revenue Code
If an individual is to receive alimony and child support, but for a taxable year they receive less than the required amount, the amount receive is first applied to what? (alimony/child support)
Child Support
If an individual is underpaid in Child Support & Alimony they recognize the amount as being applied to Child Support First. Therefore if they were owed $40,000 ($20k of Alimony & $20k of Child Support) & they received only $5000 they will apply the $5000 entirely to Child Support.
If a cash-method taxpayer receives other-than-cash compensation (for example stock) in payment of services rendered, they will recognize this income at ______ (FMV on date of Receipt/Amount of Debt/Debtor’s Basis)
FMV on Date of Receipt
An employee acquires stock through an incentive stock option (ISO) that was granted by their employer as part of an executive compensation package. When are they subject to regular tax?
When the stock is sold
T/F
An employee acquires stock through an incentive stock option (ISO) that was granted by their employer as part of an executive compensation package. There are tax consequences when the ISO is granted to the employee
FALSE
No tax consequences when the ISO is simply granted
An employee acquires stock through an incentive stock option (ISO) that was granted by their employer as part of an executive compensation package. When the option is exercised, any excess of the stock’s FMV over the option price is treated how?
This is a tax preference item for the purposes of the employee’s AMT. This does not affect the employee’s regular tax.
An employee acquires stock through an incentive stock option (ISO) that was granted by their employer as part of an executive compensation package. If the employee holds the stock acquired at least _____ from the date the option was granted and at least _____ from the date the stock was acquired, the employee’s realized gain is treated as a LTCG in the year of sale
2 years
1 year
An employee acquires stock through an incentive stock option (ISO) that was granted by their employer as part of an executive compensation package. If the employee holds the stock acquired at least 2 years from the date the option was granted and at least 1 year from the date the stock was acquired, the employee’s realized gain is treated as a LTCG in the year of sale. What consequence does this have on the employer?
The employer receives no compensation deduction
An employee acquires stock through an incentive stock option (ISO) that was granted by their employer as part of an executive compensation package. If the employee does not hold the stock acquired at least 2 years from the date the option was granted and at least 1 year from the date the stock was acquired, the employee must report _________ (ordinary income/LTCG) to the extent that the stock’s _____ (FMV/Basis) at the date of exercise exceeded the option price. Any remaining gain is reported as _______ (ordinary income/LTCG/STCG)
Ordinary Income
FMV
EITHER LTCG or STCG
An employee acquires stock through an incentive stock option (ISO) that was granted by their employer as part of an executive compensation package. The employee does not hold the stock acquired at least 2 years from the date the option was granted and at least 1 year from the date the stock was acquired. What consequence does this have on the employer?
The employer receives a compensation deduction equal to the amount of ordinary income reported by the employee
