Study Unit 4 Flashcards
State the formula for calculating individual income tax
Gross Income - Adjustments (above the line) = Adjusted gross income - Greater of standard deduction or itemized deductions - Qualified business income deduction = Taxable Income X Tax rate = Gross tax liability - Credits = Net tax liability or refund receivable
Define gross income
Gross income incudes all income from whatever source derived except as otherwise provided.
What amount of employee expenses reimbursed by employers is includible in gross income under (1) non-accountable plans and (2) accountable plans?
Type of Plan Includible Amount
Non-Accountable Whole reimbursement
Accountable Reimbursement in excess of expenses
What are the criteria for qualifying payments as alimony?
A payment is considered to be alimony when it is
- Paid in cash
- Paid pursuant to a written divorce or separation instrument
- Terminated at the death of the recipient
- Not designated as other that alimony (e.g., child support)
- Not paid to a member of the same household
- Not paid to a spouse with whom the taxpayer is filing a joint return
Give examples of income not included in an individual taxpayer’s gross income.
- Life insurance proceeds (except interest on proceeds)
- Interest on state and local governments obligations
- Return of capital for annuity contracts
- Compensation for personal physical injury or sickness
- Gifts
- Prizes and awards
- Foreign-earned income
- Scholarships and tuition reduction
How is the current-year exclusion on annuity contracts calculated?
Current-period exclusion = Current-period receipt x [Investment/(Periodic payment x Number of payments)]
To what extent are scholarships or fellowships excluded from an individual taxpayer’s gross income?
Situation Extent of Exclusion
Taxpayer is a candidate for degree 1. Amount is used for required tuition or fees, books, supplies, or equipment and
2. Services are not preformed in exchange (e.g., teaching assistance)
Taxpayer is not a candidate
for a degree No exclusion
To what extent are amounts recovered during the year (e.g., refunds are previous overpayment) excluded from and individual taxpayer’s gross income?
Amounts recovered during the tax year that do not provide a tax benefit in the prior year are excluded. For examples subsequent refunds are deductions itemized in excess of the applicable standard deduction.
To what extent is the realized gain on the sale of a principal residence excluded from an individual taxpayer’s gross income?
In general, a taxpayer may exclude up to $250,000 ($500,000 for married filing jointly) of realized gain on sale of a principal residence.
What are the two tests to qualify an individual taxpayer for the foreign-earned income exclusion?
The taxpayer must be
* A resident of a foreign country for the entire taxable year or * Present in a foreign country for 330 days during 12 consecutive months.
