REG 1 Module 2

Question 1

What portion of life insurance premiums is taxable?

Answer 1

It’s not taxable up to $50,000 per employee that the employer paid for them. Everything above that is taxable.

Question 2

What portion of life insurance proceeds are taxable or nontaxable?

Answer 2

Life insurance proceeds are always nontaxable, but the interest income on deferred payout is fully taxable.

Question 3

What are items that are tax- free dividend distributions?

Answer 3

• Return of Capital: distributes earnings with no earnings or profits. Simply reduces it’s basis.
• Stock Split: Allocate basis over the total number of shares held after the split.
• Stock Dividend: (Unless cash or other property option)
• Life Insurance Dividend:

Question 4

Explain capital gain distribution.

Answer 4

Distribution by a corporation that haas no earnings and profits and for which the shareholder has recovered his or her entire basis, are treated as taxable gross income.

Question 5

When is a state and Local Tax refund taxable?

Answer 5

If you itemized in the previous year then your state and local refund is taxable, if you used standard deduction then you are not taxed on it.

Question 6

The retirement money cannot be withdrawn until an individual reaches _____ age.

Answer 6

59 1/2

Question 7

A taxpayer is required to start taking withdrawals by this age…

Answer 7

70 1/2

Question 8

How is the Traditional Nondeductible IRA taxed?

Answer 8

The principal (return on capital): nontaxable
Accumulated Earnings: taxable

Question 9

How is early withdrawal of IRA treated?

Answer 9

There is a 10% penalty on top of regular income tax.

Question 10

What is the EXCEPTION for penalty tax on early IRA withdrawal?

Answer 10

HIM DEAD
Home buyer (1st time): $10,000 used to buy a home within 120 days of withdrawal
Insurance (medical): if unemployed for 12 consecutive weeks
Medical expenses in excess of 10% of AGI
Disability: permanent NOT temporary
And
Death

Question 11

How is excess contribution to the IRA treated?

Answer 11

6% excise tax each year until it’s corrected

Question 12

How is unemployment compensation treated vs. workers’ compensation?

Answer 12

Unemployment - include in GI

Workers’ Comp. - tax free

Question 13

When is a Series EE bond tax-free?

Answer 13

• Purchaser of the bond must be the sole owner of the bond (or joint with spouse)
• when it’s used for higher education for taxpayer, spouse or dependent (double EE)
• taxpayer is over age of 24 when bond received
• a married taxpayer files a joint return
• meets certain income requirements

Question 14

What is the excludable amount of payments made by the employer on the behalf of the employees for employee’s educational expense?

Answer 14

$5,250

Question 15

How are tuition reductions treated for employees of the institution for undergraduate and graduate?

Answer 15

Undergraduate: May exclude the tuition from income
Graduate: May exclude the tuition from income only if they are engaged in teaching or research activity and only if the tuition reduction is received in addition to pay for the teaching or research

Question 16

Are US Treasury Bonds taxable?

Answer 16

Yes

Question 17

Is a federal refund taxable?

Answer 17

Yes

Question 18

How are Social Security benefits included in gross income?

Answer 18

Combined income is compared to threshold amount.
If combined income is less than threshold amount taxed is lessor of:
1) 50% of benefits
2) 50% of excess of combined income over threshold
If combined income is more than threshold amount taxed is lessor of:
1) amount calculated above plus 85% of the excess combined income over threshold
2) 85% of benefits

Question 19

What is tax-exempt interest income?

Answer 19

State and Local Government Bonds/Obligations (NOT federal)
Bonds of a U.S. Possession
Series EE
Veteran Administration Insurance

Question 20

True or False: State, Local and Federal Bonds are all tax-exempt.

Answer 20

False: Federal are taxable

Question 21

True or False: Interest income from municipal bonds is taxable.

Answer 21

False: Interest income from municipal bonds is tax-free.

Question 22

What will result in an accruable expense for an accrual- basis taxpayer?

Answer 22

A repair completed prior to year end but not invoiced. (services have been preformed but they have not yet been paid for)

Question 23

What is the maximum deduction on a capital loss?

Answer 23

$3,000

Question 24

For cash basis taxpayers, gain or loss on a year-end sale of listed stock arises on the ________ date.

Answer 24

Trade date (NOT settlement date) - this is true for accrual as well.

Question 25

Are state and municipal bonds taxable?

Answer 25

No

Question 26

The regular tax that applies to early withdrawal of IRA is the marginal or effective tax rate?

Answer 26

marginal

Question 27

Is the painted value of a house or a use of a beach house considered alimony?

Answer 27

No, because it’s only cash or cash equivalent.

Question 28

How is jury duty treated that was required to be remitted to the employer?

Answer 28

It may be deducted for from gross income in arriving at AGI

Question 29

A cash basis taxpayer should report gross income:

Answer 29

For the years in which income is either actually or constructively received, whether in cash or property.

Question 30

What is an accountable plan?

Answer 30

Where expenses are not reported to an employer. Any amount received by the employer should be reported as part of the wages on employees W2.

Question 31

How do you report income when exchanging services?

Answer 31

You report the FMV of the service received (whole amount)