REG: Chapter 8 Flashcards
Gross Income
How are social security benefits calculated when determining taxable income with respect to provisional income being at the 50% tax threshold?
Married, Filing Jointly:
Income is between $32,000 and $44,000
Lesser of:
* 50% of Social Security Benefits
* 50% of the excess of provisional income over $32,000
Single, Head of Household or Qualifiying Widower:
Income is between $25,000 and $34,000
Lesser of:
* 50% of Social Security Benefits
* 50% of the excess of provisional income over $25,000
Gross Income
What are the income thresholds to determine taxable income on social security benefits?
Taxable Income
* Less than or equal to $25,000 (Single)/$32,000 (MFJ): No Tax
* More than $25,000/$32,000 but less than $34,000/$44,000: 50% Tax
* More than $34,000/$44,000: 85% Tax
Gross Income
How is provisional income calculated when determine taxes on Social Security benefits?
AGI (Before Benefits) + Total Other Income + Total Interest + 50% of Social Security Benefits
No tax if taxable income + 50% of social security benefits is less than $25,000 (Single)/$32,000 (MFJ)
Gross Income
How are social security benefits calculated when determining taxable income with respect to provisional income being at the 85% tax threshold?
Single, Head of Household, Qualifying Widow
Lesser of:
* 85% of the excess of provisional income over $34,000 + $4,500
* 85% of benefits
Married, Filing Jointly
Lesser if:
* 85% of the excess of provisional income over $44,000 + $6,000
* 85% of benefits
Gross Income
When is income included in gross income for a cash-basis taxpayer?
- The income is actually received
- The income is constructively received
Income declared and not paid until the following year (i.e. dividends), are not considered income for the current year
Gross Income
How is cancellation of debt included as gross income?
It is the FMV less the adjusted basis of the asset
Gross Income
What is Subpart F Income?
- Subpart F income is income that comes from foreign company services that is performed outside of the foreign subsidiary’s country of incorporation
- Example: A U.S. company has a subsidiary in England, and the English subsisidiary performs services in Ireland that were agreed to by the U.S. parent corporation
Exclusions
When is a gain reported by a taxpayer when the residence is sold?
- A gain equal to or greater than $250,000 will be recognized
- Any gain below $250,000 is excluded
Exclusions
What type of life insurance that is paid by the employer is not taxable to the employee?
- Group term life insurance
- The limitation of coverage is $50,000
- Anything over $150,000 is taxable to the employee based in IRS Cost
Example
Salary = $80,000
Group-Term Life Insurance = $120,000
IRS Cost: $2.12/$1,000 of coverage
First $50,000 is excluded, taxable amount = $70,000 ($120,000 - $50,000)
$2.12 x ($70,000/1,000) = $148.40
Taxable Amount = Salary + $148.40 = $80,000 + $148.40 = $80,148.40
Exclusions
What is the formula to calculate savings bond interest?
Tax-Exempt Interest
* (Higher Education Expense / Total Bond Amount Received) x Accrued Interest
Taxable Interest
* ((Total Amount Received - Tax-Exempt Interest) / Total Bond Received) x Accrued Interest
Exclusions
What is the income treshold for Tax-Exempt Series EE Savings Bond interest?
Single: $80,000
Married, Filing Jointly: $120,000
Exclusions
What type of compensation is included in Form W-2?
- Gross income
- Cash bonuses received
- Stock received as a bonus is reported at FMV
- Unrestricted stock based on the difference between the FMV and the option plan price
Exclusions
When are dividends on life insurance policies excluded from gross income?
When the cumulative dividend does not exceed the premium
Individual Taxation
What are the limits for employee achievement awards?
- If the award plan is in place, the deductible is $1,600 per employee
- If the award plan is not in place, the deductible is $400 per employee
