Taxes: Gross Income - Exclusions

Question 1

Taxes:
Gross Income - Exclusions
Prized & Awards

Answer 1

Prized & Awards
- FMV included in income
- exclude if civic, artistic, educational, scientific, or literary
Criteria
1. selected without action on their part
2. not required to perform services
3. if amount is paid directly to a tax-exempt or governmental organization

Question 2

Taxes:
Gross Income - Exclusions
Scholarships

Answer 2

Scholarships

• excluded if:
  1. used by degree seeking student for tuition, books, or supplies
  2. room and board treated as earned income

Question 3

Taxes:
Gross Income - Exclusions
Life Insurance Proceeds

Answer 3

Life Insurance Proceeds

• excluded from income
• usually subject to estate tax
• exchange/sale of policy for cash surrender value is treated as sale and proceeds>costs are income
• except by terminally ill taxpayer (exclude)
• life insurance policy purchased for consideration is treated like an asset and proceeds>cost are income

Question 4

Taxes:
Gross Income - Exclusions
Gifts

Answer 4

Gifts

• excluded from income
• made by generosity
• income accrued before gift is taxed to donor
• income accrued after gift is taxed to donee

Question 5

Taxes:
Gross Income - Exclusions
Forgiveness of Debt

Answer 5

Forgiveness of Debt

• income unless gift or bankruptcy
• if insolvent, not bankrupt, can exclude only to extent of insolvency
• cancellation of debt on real property used in trade of business, not taxable, but must reduce basis of property
• discharge of indebtedness on foreclosure, exclude up to $2M

Question 6

Taxes:
Gross Income - Exclusions
Social Security Benefits

Answer 6

Social Security Benefits

• generally excluded from income
• if PI exceeds certain limit, up to 85% taxable

Question 7

Taxes:
Gross Income - Exclusions
Foster Child Payments

Answer 7

Foster Child Payments

- if for the child’s expenses

Question 8

Taxes:
Gross Income - Exclusions
Welfare Payments

Answer 8

Welfare Payments

- excluded