REG 1 - Gross Income: Part 1 Flashcards
How is non-cash income computed as it relates to taxable and nontaxable events?
1) Taxable event = Income recorded at fair market value = Basis recorded at fair market value
2) Nontaxable event = No income recorded = Basis recorded at net book value (old owner’s NBV)
Define realization and recognition?
Realization - what happens in the real world
Recognition - when you record the realized gain or loss
At what value is property recorded for gross income?
Property is recorded as income at fair market value
Define cancellation of debt (COD) as it relates to gross income?
All debts cancelled are included in gross income
How are life insurance premiums paid by employer treated as it relates to taxable and nontaxable income?
- Premiums paid by employer above first $50,000 of coverage are taxable.
E.g. Boss pays $50 a month on your behalf for $50,000 of life insurance coverage - the preimum paid is NONTAXABLE.
E.g. Boss pays $75 a month on your behalf for $75,000 of life insurance coverage - the difference of premiums paid above $50,000 of coverage are TAXABLE. $25 is taxable income.
How are life insurance proceeds treated as it relates to taxable and nontaxable income? What is the exception of life insurance proceeds being taxable and nontaxable income?
- Life insurance proceeds are NONTAXABLE
- Exception: interest income element on deferred payout arrangement of life insuance is fully taxable.
How are employer paid accident, medical, and health insurance premiums treated as they relate to income?
Premium payments on accident, medical, and health insurance paid by employer are excluded from employee’s income.
How are de minimis fringe benefits treated as they relate to income?
Example: Employee’s personal use of company computer.
De minimis fringe benefits are excluded from gross income because they are impractical to account.
How are employer paid meals and lodging treated as they relate to income?
Employer paid meals and lodging are NOT included in employee’s gross income.
How are employer paid education expenses treated as they relate to income?
- Up to $5,250 may be excluded from employee’s gross income for educational expenses.
How are qualified pension, profit-sharing, and stock bonus plans treated as they relate to taxable and nontaxable income?
1) Payments made by employer are NONTAXABLE
- put into trust account
2) Benefits received are TAXABLE
- withdrawing from trust account
Define flexible spending arrangements (FSAs) and how they relate to taxable and nontaxable income?
- Employers deposit up-to maximum $2,600 of employee’s salary in to FSA.
- The total $2,600 is nontaxable income that can be used for health care costs (braces, surgery).
- If you don’t use FSA within 2.5 months after year-end, you lose your right to have pre-tax income.
