REG - Federal Taxations for Individuals Flashcards
constructive receipt
Constructive receipt requires a cash basis taxpayer to include the value of property in income in the period in which the right to (or control of) the property is acquired
For divorces finalized before 2019, alimony is taxed to the recipient and the payer is granted a deduction for AGI
Child support is not taxable to the one receiving the payments and isn’t deductible by the one making the payments
Property transfers to former spouse under a divorce decree aren’t taxable
For divorce agreements settled on or after January 1, 2019, alimony is not included in the recipient’s income.
. A degree candidate can exclude the amount of a scholarship or fellowship that is used for tuition and course-related fees, books, supplies, and equipment.
Amounts used for other purposes including room and board are included in gross income.
Jury pay duty is includible income.
Unemployment compensation is included in gross income
Prizes/awards can be excluded if they’re for civic, artistic, educaitonal, scientific or literary achievement
Proceeds of life insurance received due to the death of the insured are excluded from income
Gifts and inheritances are excluded from the income of the recipient
if the taxpayer is bankrupt or insolvent, the debt forgiveness isn’t taxable
Generally, social security benefits isn’t included in income
However, if the taxpayer’s provisional income exceeds a specified amount, up to 85% of the benefits may be included in income
Foster child payments, welfare payments from government, and worker’s compensation aren’t excluded from income
Loans and cash support from parents are also excluded from gross income.
In order to be treated as alimony, a payment must be made in cash and be received by or on behalf of the payee spouse. Furthermore, cash payments must be required to terminate upon the death of the payee spouse to be treated as alimony.
If an action has its origin in a personal physical injury, then all resulting damages (other than punitive damages) can be excluded from gross income.
If a divorce agreement specifies both alimony and child support, but less is paid than required, then payments are first allocated to child support, with only the remainder in excess of required child support to be treated as alimony.
Foster child payments are excluded from income to the extent they represent reimbursement for expenses incurred for care of the foster child. Since the payments ($3,900) exceeded the expenses ($3,000), the $900 excess used for the Charaks’ personal expenses must be included in their gross income.
After 2017, a deduction is allowed for 20% of the taxpayer’s income from pass-through entities (parternships, limited liability companies, and S-corps) and sole proprietorships.
To qualify for QBI deduction, the business activity must generally be conducted in the US
The QBI deduction doesn’t apply to specified service trades or business (health, law, accounting, actuarial sciences, performing arts, consulting, athletics, financial services etc.) or businesses if taxable income of the taxpayer doesn’t exceed 326k (married filing joint), 163,300 (married filing separately) or 163,300 (others)
return of capital
the cost of goods or the cost of property sold
return of capital is not income
Advance rents must be included in gross income when received regardless of the period covered or the accounting method used.
The amount to be reported each year under installment method
(Gross profit/total contract price) x Amount received in year
An accrual-basis taxpayer should report gross income
When “all events” have occurred that fix the taxpayer’s right to receive the item of income, and the amount can be determined with reasonable accuracy.
Under the accrual method, an item is generally included in gross income for the year in which it is earned, regardless of when income is collected. An item of income is earned when all the events have occurred to fix the taxpayer’s right to receive the income, and the amount of income can be determined with reasonable accuracy.
A lessor excludes from income any increase in the value of property caused by improvements made by the lessee, unless the improvements were made in lieu of rent. I
ordinary and necessary
Meaning the nature of the expenditure is customary and appropriate under the circumstances
reasonable
interpreted to mean that an expenditure can’t be extravant in amount
Medical expenses are deductible only to the extent that they exceed 7.5% of AGI
