SU 2

Question 1

Is Prepaid Income Included in Gross Income?

Answer 1

Generally taxable in the year received, prepayments for merchandise inventory are not income until the merchandise is shipped.

Question 2

Is Bartering Included in Gross Income?

Answer 2

included in gross income at fair market value of items received

Question 3

Is Royalties Included in Gross Income?

Answer 3

Royalties constitute ordinary gross income and are not a return of capital.

Question 4

Is Alimony Included in Gross Income?

Answer 4

Deductible before 2018, after 2019 no longer deductible. AKA, not taxable.

Question 5

Is Child Support Included in Gross Income?

Answer 5

Not deductible.

Question 6

Is Property Settlements (like from divorce) Included in Gross Income?

Answer 6

Treated as a gift and is therefore excluded from Gross income.

Question 7

Is Annuities Included in Gross Income?

Answer 7

The portion of amounts received under an annuity contract for which a statute does not provide an exclusion is gross income. Taxpayers are permitted to recover the cost of the annuity (the price paid) tax-free.

Question 8

Is 401K Plans Included in Gross Income?

Answer 8

Not generally included in income of the participant.

Question 9

Is Income from Life Insurance & Endowment Contracts Included in Gross Income?

Answer 9

Proceeds received due to the death of the insured are generally excluded from gross income. Interest paid on the proceeds of a policy that is paid out over time is gross income to the beneficiary.

Question 10

Is Debt Discharge Included in Gross Income?

Answer 10

Discharge of indebtedness can result in gross income. Gross income includes the cancellation of indebtedness when a debt is canceled in whole or in part for consideration. Exceptions: Bankruptcy, or charges that occur while the debtor is insolvent, related to farm indebtedness, or real property or principal residence indebtedness.

Question 11

Is Student Loan Cancelation Included in Gross Income?

Answer 11

May be discharged and excluded from income if the former student engages in certain employment or the discharge is due until death or total and permanent disability.

Question 12

Is Illegal Activities Included in Gross Income?

Answer 12

Income from Illegal Activities counts as gross income.

Question 13

Is Scholarships Included in Gross Income?

Answer 13

Amounts received by an individual as scholarships or fellowships are excluded from gross income to the extent that the individual is a candidate for a degree from a qualified educational institution and the amounts are used for required tuition or fees, books, supplies, or equipment (not personal expenses, such as room and board).

1. Gross income includes any amount received, e.g., as tuition reduction, in exchange for the performance of services, such as teaching or research.
2. Generally, a reduction in undergraduate tuition for an employee of a qualified educational organization does not constitute gross income. 3. Subsistence payments administered by Veteran Affairs are excluded from gross income.

Question 14

Is Unemployment Benefits Included in Gross Income?

Answer 14

Unemployment benefits received under a federal or state program, as well as company-financed supplemental plans, are gross income.

Question 15

Is Strike benefits Included in Gross Income?

Answer 15

Received from a union are also included in income.

Question 16

Is Recovery of Medical Deductions Included in Gross Income?

Answer 16

If the taxpayer incurred medical expenses in Year 1, deducted these expenses on his or her Year 1 tax return, and received reimbursement for the same medical expenses in Year 2, the reimbursement is included in gross income on the Year 2 return to the extent of the previous deduction that was allowed on the return.

Question 17

Is Disability Policies Included in Gross Income?

Answer 17

Proceeds from disability insurance policies are tax-free if paid for by the employee.
1. If the employer contributed to the coverage (employer contributions are excluded from the employee’s income), then the amount received must be prorated into taxable and nontaxable amounts.
2. Payments made from a qualified trust on behalf of a self-employed person are considered employer contributions.
For example, if the employer pays 75% of the insurance premiums of a disability policy, 75% of the proceeds are includible in income.

Question 18

Is Employer-Provided Dependent Care Included in Gross Income?

Answer 18

Up to $5,000 of dependent care provided by an employer is excluded from income. This includes:

	1. Amounts paid directly to the taxpayer or the taxpayer’s care provider for the care of the dependent
	2. FMV of employer-provided daycare facility
	3. Pre-tax contributions under a flexible spending plan

Question 19

Is Employer-Provided Life Insurance Included in Gross Income?

Answer 19

Proceeds of a life insurance policy for which the employer paid the premiums are excluded from the employee’s gross income.

Question 20

Is Awards & Prizes Included in Gross Income?

Answer 20

If the prize or award is in a form other than money, the amount of gross income is the FMV of the property. The honoree may avoid inclusion by rejecting the prize or award. Some prizes and awards are excludable.

Question 21

Are Long-Term Care Coverage Included in Gross Income?

Answer 21

Contributions by an employer to an employee’s long-term care coverage are nontaxable employee benefits.

Question 22

Are Pensions Included in Gross Income?

Answer 22

Pensions are most often paid in the form of an annuity. Therefore, the rules for pensions are similar to the rules for annuities. Employees are able to recover their cost tax-free.

Question 23

Are Death Benefits Included in Gross Income?

Answer 23

All death benefits received by the beneficiaries or the estate of an employee from, or on behalf of, an employer are included in gross income. This is for employer-paid death benefits, not to be confused with the death benefits of a life insurance plan provided by an employer.

Question 24

Are Rental Value of Parsonage Included in Gross Income?

Answer 24

Ministers may exclude from gross income the rental value of a home or a rental allowance to the extent the allowance is used to provide a home, even if deductions are taken for home expenses paid with the allowance. The exclusion is the smaller of
1. The actual expenditures of the minister for the home,
2. The amount designated with the employer as a rental allowance, or
3. The fair rental value of the housing, plus the cost of utilities.
The parsonage allowance is subject to self-employment taxes. A minister should include any offerings given directly to him or her for church-related functions (e.g., marriages).

Question 25

Are Combat Zone Compensation Included in Gross Income?

Answer 25

Military officers may exclude compensation up to an amount equal to the highest rate of basic pay at the highest pay grade that enlisted personnel may receive (plus any hostile fire/imminent danger pay).

	1. The exclusion applies only to compensation received while serving in a combat zone or while hospitalized as a result of wounds, disease, or injury incurred in a combat zone.
	2. Military personnel below officer level (i.e., enlisted) are allowed the same exclusion without the cap.

Question 26

Are Gifts or Inheritance Included in Gross Income?

Answer 26

The IRC provides for exclusion from the gross income of the recipient the value of property acquired by gift or inheritance. A gift is a transfer for less than full or adequate consideration that results from the detached and disinterested generosity of the transferor.

	1. Gift transfers include inter vivos (between the living) gifts and gifts by bequest (ofpersonal property by a will), devise (of real property by a will), and inheritance (understate intestacy law). 2. Voluntary transfers from employer to employee are presumed to be compensation, not gifts.

Question 27

Are Treasure Trove Included in Gross Income?

Answer 27

Treasure trove is gross income for the tax year in which it is undisputedly in the taxpayer’s possession.

Question 28

Are Reimbursements for Moving Expenses Included in Gross Income?

Answer 28

Qualified reimbursements incurred by members of the military on active duty are excluded from gross income. If the reimbursement is not for qualified moving expenses, or if the taxpayer is not a member of the military, it is included in gross income.

Question 29

Are Adoption Assistance Programs Included in Gross Income?

Answer 29

Qualified adoption expenses paid to a third party or reimbursed to an employee by an employer under a written adoption assistance program are excludable from the employee’s gross income.

Question 30

Are Reimbursement for Living Expenses Included in Gross Income?

Answer 30

Insurance payments received by a taxpayer whose residence is damaged or destroyed and who must temporarily occupy another residence are excluded. This includes taxpayers with an undamaged residence who are required not to occupy the home due to a disaster.

Question 31

Are Reimbursed Employee Expenses Included in Gross Income?

Answer 31

If reimbursements equal expenses and the employee makes an accounting of expenses to the employer, the reimbursements are excluded from the employee’s gross income, and the employee may not deduct the expenses (accountable plan).

Question 32

Are Employee Housing at an Educational Institution Included in Gross Income?

Answer 32

Employee housing at an educational institution (including an academic health center) is excluded from income if the rent paid by the employee exceeds5%of the fair market value of the housing.

Question 33

Are Fringe Benefits Included in Gross Income?

Answer 33

An employee’s gross income does not include the cost of any fringe benefit supplied or paid for by the employer that qualifies as a(n)

	1. No-additional-cost service
	2. Qualified employee discount
	3. Working condition fringe
	4. De minimis fringe
	5. Qualified transportation fringe
	6. Qualified moving expense reimbursement (active military only)
            7. Employer-provided educational assistance

Question 34

Are Employee Discounts and no Cost Services Included in Gross Income?

Answer 34

No. They are excluded from Income.

Question 35

Are Working Condition Fringe Included in Gross Income?

Answer 35

The FMV of property or services provided to an employee by an employer as a working condition fringe benefit is excludable by the employee to the extent the employer can deduct the costs as an ordinary and necessary business expense.

Question 36

Are Employer-Provided Educational Assistance Included in Gross Income?

Answer 36

Up to$5,250may be excluded by the employee for employer-provided educational assistance.

Question 37

Are Foreign-Earned Income Included in Gross Income?

Answer 37

2. U.S. citizens and qualifying resident aliens may exclude up to$107,600of foreign-earned income and a statutory housing cost allowance from gross income.
   1. To qualify for exclusion, the taxpayer must have foreign-earned income, a tax home in a foreign country, and be one of thefollowing:
   1. A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
   2. A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
   3. A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12consecutive months.
   2. The$107,600limitation must be prorated if the taxpayer is not present in (or a resident of) the foreign country for the entire year (Form 2555).
   3. This exclusion is in lieu of the foreign tax credit.
   Deductions attributed to the foreign-earned income (which is excluded) are disallowed.

Question 38

Are Rebates Included in Gross Income?

Answer 38

A rebate to the purchaser is treated as a reduction of the purchase price. It is not included in gross income.

Question 39

Is Dividends & Alimony considered Earned Income?

Answer 39

No, they are considered unearned.

Question 40

Is a discount from a financial institution included in gross income?

Answer 40

Yes, if from a financial institution.

Question 41

Are compensation from lost wages due to injury included in Gross Income?

Answer 41

No, it is excluded if due to injury

Question 42

If the state provides money to help with utility bills is it included in gross income?

Answer 42

It is not.

Question 43

Is the amount from a Libel case included in gross income?

Answer 43

Yes