Part VIII: Income

Question 1

constructive receipt

Answer 1

A taxpayer is required to include in gross income (GI) the value of property in the period in which they gained right to the property.

Question 2

tax-benefit rule

Answer 2

If a taxpayer deducted an expense in yr. 1, and was then reimbursed for the expense in yr. 2, the reimbursement needs to be included in yr. 2 income b/c the original expense provided a tax benefit.

Question 3

stock and dividend splits

Answer 3

1. Not a taxable event b/c no new property is received.

2. but, the taxpayer must adjust their basis in each share.

Question 4

option to receive cash on stock and dividend splits

Answer 4

If there is an option to receive cash, the event triggers income to all recipients, whether recipients choose cash or more shares.

Question 5

Interest on EE savings bonds

Answer 5

1. can be excluded from income in the same year that the taxpayer incurs higher ed. expenses.
2. Exclusion only available to individuals 24+ yrs. old.

Question 6

alimony

Answer 6

1. taxable to recipient

2. deductible for AGI to payor

Question 7

requirements to be labeled as alimony

Answer 7

1. Must be cash or expense pmt.
2. Contingent on recipient still being alive.
3. Required by written agreement or court decree.
4. Not identified as non-alimony.

Question 8

for AGI

Answer 8

above the line deduction

Question 9

from AGI

Answer 9

below the line deduction

Question 10

child support

Answer 10

1. not taxable to recipient

2. not deductible for payor

Question 11

Monies excluded from income:

Answer 11

1. Money received as compensation for physical injuries or sickness.
2. Proceeds from life insurance due to death.
3. Gifts.
4. Scholarships (up to the amount of tuition and expenses).

Question 12

taxable amount of life insurance policy

Answer 12

1. None if proceeds are collected due to death of the insured.
2. If the policy is sold to an individual other than the original beneficiary, the policy is an investment to the new buyer and the regular basis and gains apply.

Question 13

taxable amount of scholarships

Answer 13

1. Tax-free up to the amount of tuition and expenses.

2. If the student is required to work as part of the scholarship, then the money is taxable.

Question 14

jury duty

Answer 14

If an employee is required to give the employer any funds paid to them for jury duty in exchange for regular payment from employer, jury duty funds given to the employer are a for AGI deduction.

Question 15

The value of an employee discount can be excluded from income if:

Answer 15

1. The value is up to 20% of services.

2. OR, no more than the avg. gross profit % for goods.

Question 16

Insurance premiums paid by employer for employee that can be excluded from employee’s income include:

Answer 16

1. Group term life insurance up to $50,000 of coverage.
   1a. Amounts > $50,000 are taxable.
2. Health insurance premiums.
3. Disability insurance premiums.

Question 17

Fringe benefits that can be excluded from employee income:

Answer 17

1. Meals and lodging for employer convenience.
2. Working condition expenses.
3. De minimus fringes
4. Employee discounts
5. Employee gifts under $25.
6. Safety or achievement awards.

Question 18

Max. contribution that can be made to a 401(k) plan to reduce taxable salary is…

Answer 18

$18,000.

Question 19

Max. contribution that can be made to a Traditional or Roth IRA in 2015 is…

Answer 19

$5,500.

Question 20

Deductible or not deductible?

1. Traditional IRA contributions
2. Roth IRA contributions

Answer 20

1. Deductible (pay taxes when funds are withdrawn after retirement)
2. Not deductible (pay taxes now)

Question 21

Late IRA contributions

Answer 21

Can be made up until the due date of that year’s tax return (April 15).
1. You can contribute your $5,500 for 2014 only up to April 15, 2015, even if an extension is filed.

Question 22

early withdrawal of Traditional IRA funds

Answer 22

Barring any exceptions, there is a 10% penalty tax on the amount withdrawn.