Individual Taxes: Gross Income Characterization of Income Flashcards
The eligibility to participate standard
means that a group term life insurance plan is not discriminatory if the plan benefits 70% of all employees
Payments that are required after the death of the other spouse
are not considered alimony and should not be reflected on a tax return as such
Although life insurance death proceeds are generally not taxable to the recipient
there are special rules if the policy is transferred for value. In that case the death proceeds are taxable, except to the extent of basis
Basis in such a policy consists of:
consideration paid for the policy,
premiums paid under the policy, and
interest expense on debt incurred to finance the policy which would not have been allowed as a deduction previously.
Difference between reimbursement under an Accountable plan vs a Non Accountable plan
under an accountable plan, no money would be included in the employee’s income
Under a nonaccountable plan, all expense payments received are reported in Box 1 of the employee’s W-2. See IRS Publication 17
Typically, a taxpayer must pay tax on interest earned on U.S. savings bonds. However, interest income may be excluded from gross income if
qualified education expenses were paid for the taxpayer, spouse, or any dependent claimed as an exemption on the return
The taxpayer’s filing status cannot be married filing separate
Qualified education expenses must be reduced by any tax-free benefits received such as scholarships or fellowships.
Barter, or the swapping of goods and services
must be included in gross income to the extent of the fair market value (FMV) of the good or service received
If you have rental use of a property more than 14 days or 10% of the total rented days
You must allocate the expenses between the total expenses between the rental use and personal use based on the number of days used for each purpose
The following requirements must be met for the sale of property to be taxed at the 0% capital gains rate:
The property must be held for more than 12 months.
The taxpayer’s marginal rate may not be more than 15%.
The gain must be recognized after December 31, 2007.
Long-term capital gains are taxed at the following favorable tax rates for 2015:
General capital assets:
Marginal tax rate of 15% = 0%
Marginal tax rate 25% through 35% = 15%
Marginal tax rate of 39.6% = 20%
Unrecaptured Section 1250 gain = 25%
Collectibles = 28%
On Wash Sales
Losses not allowed is added to the basis of the remaining stocks held
Illegal Activities income and deductions
A taxpayer is obligated to report all income, even the income earned from illegal activities
The taxpayer is only allowed to deduct the cost of goods sold (cost of merchandise) when illegal drugs are involved
After a stock is sold to a related party at a loss
The new selling price is the basis that will be used against the original basis
that related party can use that new disallowed loss basis to reduce the gain recognized after they sell the stock
When a corporation has a group term life insurance plan, it is not discriminatory
to exclude employees who have worked for the corporation less than three years,
to offer group term insurance which varies with the amount of compensation,
or to exclude part-time employees
When a personal residence is rented out for under 15 days during a taxable year
none of the rental income is included in income, nor are any rental deductions allowed for the rental use of the residence
Generally, jury duty pay must be included as other income on IRS Form 1040. However
the taxpayer can deduct the amount of jury duty pay remitted to an employer in exchange for continued regular compensation. The deduction from gross income can be entered on line 36 on the Form 1040.
