R1: Gross Income

Question 1

When should a cash basis taxpayer report income?

Answer 1

A cash-basis taxpayer should report gross income when income is actually or constructively received (cash or property)

Question 2

Nontaxable fringe benefits

Answer 2

• De minimis fringe benefits
• Qualified tuition reduction ($5,250)
• Qualified employee discounts
• Medical, health insurance, life insurance up to $50,000

Question 3

Exempt interest

Answer 3

• State and local government bonds
• Bonds of U.S. land (NOT FED)
• Series EE education bonds for qualifying higher education expenses, net of any scholarships received (must be at least 24 and be in the name of the taxpayer, not recipient)

Question 4

Divorces before December 31, 2018

Answer 4

• Alimony received: taxable

- Alimony paid: deductible from gross income

Question 5

Divorces after January 1, 2019

Answer 5

• Alimony received: not taxable

- Alimony paid: not deductible from gross income

Question 6

Alimony payments

Answer 6

• Cash or equivalents (not artifacts)
• Cannot exceed beyond death
• Legally required by court order
• Cannot live together
• Cannot file joint return

Question 7

Child support and property settlements

Answer 7

Never taxable

Question 8

Child support before alimony

Answer 8

Any payment received applies to child support first

Question 9

Traditional IRA

Answer 9

• Contributions not deductible
• When withdrawn, principal payments are not taxable
• Earnings on the principal are taxable as ordinary income

Question 10

Exceptions to 10% penalty for early distributions of IRA (HIM DEAD)

Answer 10

H omebuyers: $10,000 max within 120 days
I nsurance (medical)
M edical expenses over AGI
D isability
E ducation
A doption or child ($5,000 max)
D eath

Question 11

Interest included in gross income

Answer 11

Interest on tax refunds
Interest accrued on zero coupon bonds
Interest on U.S. Treasury Bonds
Interest on U.S. Series EE bonds EXCEPT if paying higher education expenses (does not include room and board)

Question 12

Coverdell Savings Account contribution

Answer 12

NOT deductible

Question 13

Roth IRA contribution

Answer 13

NOT deductible

Question 14

Pension benefit in the form of an annuity, employee does not pay into it

Answer 14

None of the annuity is deductible

Question 15

Earned income tax credit

Answer 15

Fully deductible even if the taxpayer does not pay taxes