STU3 Flashcards
Is income recognized when the shares received have a greater value than the additional cash invested in a dividend reinvestment plan?
Dividends are gross income. So yes, the difference between the amount paid and the FMV is ordinary income.
How many personal exemptions are allowed for:
Sam – age 72; normal vision
Ann – age 67; legally blind
Adjusted gross income – $34,000
No additional personal exemptions are allowed for being over 65 or for blindness. However, additional standard deductions can be taken for each of these conditions.
Does a payment to a third party pursuant to a written agreement qualify as alimony?
Yes
How is the amount of taxable Social Security benefits determined?
Under Sec. 86, if the sum of the “modified” adjusted gross income plus one-half of Social Security benefits does not exceed $32,000 on a joint return, none of the Social Security benefits will be included in gross income. Modified adjusted gross income equals adjusted gross income plus tax-exempt interest [Sec. 86(b)(2)]. If the MAGI is greater than $32,000 but less than $44,000, then the includible portion of Social Security benefits is the lesser of one-half of the Social Security benefits or one-half of the excess over the base amount of $32,000
What conditions must be present in a post-1984 divorce agreement for a payment to qualify as deductible alimony?
In order for payments to qualify as deductible alimony, they must meet all of the following requirements:
Paid in cash Paid pursuant to a written divorce or separation instrument Not designated as other than alimony Terminated at death of recipient Not paid to a member of the same household Not paid to a spouse with whom the taxpayer is filing a joint return
Roberta Warner and Sally Roger formed the Acme Corporation on October 1, 2014. On the same date Warner paid $75,000 cash to Acme for 750 shares of its common stock. Simultaneously, Roger received 100 shares of Acme’s common stock for services rendered. How much should Roger include as taxable income for 2014, and what will be the basis of her stock?
The IRC provides that if property is received in exchange for the performance of services, the excess of the fair market value of such property over the amount paid for such property is included in gross income. Since Roger did not pay anything for the stock, the fair market value of the stock ($10,000) is included in her gross income as payment (revenue) for her services. The basis of property is its “tax cost basis,” the amount paid for the property ($0) increased by the amount which was included in income ($10,000). Therefore, Roger’s basis in the stock is her tax cost of $10,000.
During an all-employee awards ceremony, Pedals Company gave Mollie a new bicycle for her outstanding safety record. This award was presented to Mollie for her services to the company and in accordance with Pedals’s qualified employee achievement awards program. The bicycle cost Pedals $1,200 and has a fair market value of $1,700. What amount must Mollie include in income?
The IRC allows an employee to exclude from gross income the value of an employee achievement award to the extent the employer may deduct it under Sec. 274(j). An employee achievement award is an item of tangible personal property provided by an employer for length of service achievement or for safety achievement. Sec. 274(j) allows a deduction of up to $400 per award (or up to $1,600 under a qualified plan) provided the average awards do not exceed $400. Since the award was a qualified plan award, the limitation is $1,600. Gross income does not include the value of an employee achievement award if the cost of the award to the employer does not exceed the amount allowable as a deduction to the employer. Because the cost of the bicycle does not exceed the $1,600 limit, Mollie will not have to recognize income.
If an individual receives shares of common stock for services rendered, how does the individual include these shares in taxable income, and what will be the basis of the stock?
The IRC provides that if property is received in exchange for the performance of services, the excess of the fair market value of such property over the amount paid for such property is included in gross income. The basis of property is its “tax cost basis.”
What amount of Social Security benefits must be included in taxable income?
First calculate the amount of provisional income (Gross Income + 1/2 of SS benefits + tax exempt income) that exceeds the adjusted base amount ($34,000). Take 85% of this excess plus 50% of Social Security benefits. If this amount exceeds 85% of the total Social Security benefits, the latter amount (85% of the total SS benefits) is included.
