Tax

Question 1

Gross Income

Answer 1

Includes any economic benefit or any clearly realized accession to wealth (realization on sale/disposition) (FMV of services given/received)

Question 2

Claim of Right

Answer 2

Taxpayer received property or funds when received w/out restriction as to use or disposition (still may have to return - but then take deduction that year)

Question 3

Tax Benefit Rule

Answer 3

If TP takes deduction in one year and recovers property that gave rise to deduction in later year TP has income to extent of earlier deduction

Question 4

Alimony and Child Support Rules

Answer 4

Alimony - taxable to receiving spouse and deductibel to paying spouse (must be pursuant to written divorce agreement
Child Support - NOT TAXABLE/DEDUCTIBLHE

Question 5

Prizes and Awards

Answer 5

Gross income includes value of cash, property, or services received as a price, award or windfall (gambling, raffle prizes, lottery, treasure trove)

Question 6

Cancellation of Indebtedness

Answer 6

Borrower has no gross income upon amount borrowed unless cancelled or discharged less than full amount
EXCEPTIONS: (RIGged) - Reduction in purchase price; Insolvency; Gift

Question 7

Life Insurance Proceeds

Answer 7

gross income does not include proceeds paid by reason of death of the insured; if paid in installments, interest taxable

Question 8

Inheritances, Gifts, Tort Awards

Answer 8

Inheritances - not included in gross income
Gifts - not include amount for gift (detached and disinterested generosity)
Tort Awards - (1) Damages for physical injury or emotional tied to physical not taxable; (2) Punitive Taxable

Question 9

Employee Related Exclusion

Answer 9

(1) Receipts from health and accident insurance
(2) life insurance from employer
(3) Meals and lodging if provided for convenience of employer, in kind and on employer’s premises
(4) Fringe Benefits
(5) Qualified Scholarships

Question 10

Deductions

Answer 10

(1) Home Mortgage - up to $1M; Home equity $100k
(2) State and Local Taxes (not sales tax)
(3) Unreimbursed casualty loss if greater than $100, sudden and unexpected and if greater tha n10% AGI
(4) Unreimbursed medical expenses over 10% of AGI
(5) Charitable Contributions - FMV of property/cash

Question 11

Personal (not deductible) v. Business Expenses (deductible)

Answer 11

(1) Legal fees in business or investment setting are deductible (personal deductible if attributable to tax advice)
(2) Deduct fees necessary to generate taxable income

Question 12

Allocation of Income - to Whom is it Income?

Answer 12

Income must be taxed to he who earns it (assignment of income
Income from property is taxed to he who owns it

Question 13

Accounting - When is it Income?

Answer 13

Cash method - reports income when received payments and deduction alike
Constructive Receipt - when funds or property are credited to account, set apart or otherwise made available
Accrual Method of Accounting - TP reports income when all events have occurred that fixed the right to receive it

Question 14

Gains and Losses

Answer 14

Gain is realized (sale) so must be recognized (reported) for tax purposes
Amount Realized - Adjusted Basis = Gain/Loss

Question 15

Divorce Property Settlements

Answer 15

A transfer of property between spouses that is incident to divorce is not taxable to either party; spouse receiving the property will have the same basis that the donor spouse had

Question 16

Basis in Gift Property

Answer 16

Recipient of gift takes the donor’s basis - compare to -
Basis in inherited property - FMV
Like Kind exchange - no gain or loss recognized when TP exchanges property held for business or investment