Module 2 Flashcards
Salaries and Wages
- Money
- Property
- Cancellation of Debt
- Bargain Purchase: Difference between selling price and FMV will be consider employee’s income
- Guaranteed Payments: Compensation to a partner for services
- Taxable Fringe Benefits
- Portion of life insurance Premiums: Over 50,000 of coverage
Nontaxable Fringe Benefits
- Life Insurance Proceeds : Interest on deferred payout is fully taxable
- Health Insurance
- De Minimis
- Meals and Lodging: for the employer convenience
- Employer payments to employee’s educational expense: up to $5,250
- Tuition reduction
- Employee Discounts
- Qualified Pension, profit-sharing and stock bonus plan : Payments by employer - Nontaxable , Benefits received - Taxable
- Flexible spending arrangements
Tax-Exempt Interest Income
- State and Local government Bonds/Obligations
- Bonds of U.S. Possession
- Series EE
- Veterans Administration Insurance: Interest on insurance dividends.
Dividend Income Source
- Earnings and Profits/current
- Earnings and Profits/accumulated
- Return of Capital
- Capital Gain Distributions
Special (lower) tax rate for qualifies dividends
Pg R1-23
- Holding period: Stock must be held for more than 60 days during the 120 day period that begins 60 days before the ex-divided date.
- Tax Rates: 0% for (10% and 15% ordinary income tax bracket - 20% (39.6% ordinary income tax bracket) - 15% for most taxpayers
Tax-Free Dividend Distributions
- Return of Capital
- Stock Split: allocate basis over the total # of shares
- Stock dividend: only when no option of cash or property is available. Same stock - basis is allocated, Different stock - Basis allocated based on FMV
- Life Insurance Dividend
State and Local Tax Refunds
Added to income only when the taxpayer used the deduction by choosing itemized deduction
Payments Pursuant to a Divorce
- Alimony - Taxable to recipient, Deducted to contributor
- Child Support - Nontaxable - No deducted
- Property Settlements - Nontaxable
IRA Income
- Traditional Deductible IRA - funds will be taxable
- Roth IRA - All benefits Nontaxable
- Traditional Nondeductible IRA - Principal - Nontaxable, Accumulated Earnings - Taxable
IRA distributions - Penalty and Exceptions
- 10% Penalty
- Exception on Penalty
Home buyer - first time 10,000 maximum
Insurance (medical) - Unemployed 12
consecutive weeks. Self-employed
Medical expenses in excess of 10% of AGI
Disability
Education
And
Death
Annuities
Original investment - nontaxable
Extra income - Taxable
- Taxpayer live longer - fully taxable after collection all the original investment
- Death before full recovery - Unrecoverable original investment becomes and itemized deduction
Business Income or Loss
Schedule C or C-EZ
Farm Income
Schedule F
Rental Income
Schedule E
Unemployed Compensation
Full amount Taxable
Social Security Income
- Low income (Single < $25,000 MFJ < $32,000) - Nontaxable
- Lower Middle Income: Less than 50% of social security taxable
- Middle Income (Single > $25,000 MFJ > $32,000) 50% taxable
- Upper middle income: between 50% and 85% taxable
- Upper income ( Single > $34,000 MFJ > $44,000) 85% is taxable
Prizes and Awards
1 . Taxable
2. Nontaxable
1. Without any action on the winner’s part
2. Assigns award directly to a government unit
or charitable organization
Gambling
Winnings: Included in gross income - taxable
Losses: Included as itemized deductions
Scholarships and Fellowships
Degree-Seeking Student - Nontaxable - spent on tuition, fees, books and supplies
Non-degree Seeking Student - Taxable at FMV
Tuition Reduction - Taxed if it is the only compensation. If reduction is in addition to other taxable compensation then it is nontaxable
Nontaxable Items
- Life insurance proceeds: interest on deferred payout is taxable
- Gift and Inheritance
- Medicare benefits
- Worker’s Compensation
- Personal injury or illness award
- Accident Insurance: Premiums paid non-taxable
- Foreign Earned income Exclusion
