Individual taxation 2.0

Question 1

Is child support or alimony deductible?

Answer 1

Alimony,
only deductible if met the certain requirement
1) payment made in cash
2) payment must be terminated after death
3) payment cannot be made to someone who lives in the same household
4) made after divorce

Question 2

When does alimony recapture rule apply?

Answer 2

if alimony payments decrease more than 15k from the previous year

Question 3

What is the alimony recapture formula?

Answer 3

R2: (P3+15k)
R1: P1- [(p2-r2+p3)/2 + 15k]
r3: r1+r2
The payee recognizes income, the receiver will have the deduction of that amount

Question 4

Are transfers between divorcing spouses taxable?

Answer 4

Nope, they are nontaxable

Question 5

Are Annuities taxable?

Answer 5

no, they are excludable to help taxpayer recover previously tax investment

Question 6

What is the annuities exclusion formula?

Answer 6

[Taxpayer investment in contract / total expected return on contract] X amount received
I/R * Recieved

Question 7

What is the annuities retirement formula?

Answer 7

Investment in contract/ number of anticipated monthly payments

Question 8

How is cancelled debt treated

Answer 8

1) Individual taxpayer -> taxable
2) When seller cancels debt -> buyer can reduce property basis to avoid income recognition
3) Shareholder cancellation of corp debt is treated as a contribution of capital

Question 9

Are compensatory damages or punitive damages excluded from income?

Answer 9

compensatory damages excluded

Question 10

How are dividends taxed?

Answer 10

1. 0% for taxpayer 15%
   15% in 10% bracelt
   20% for 39.6%

Question 11

If property or stock is transferred, what is the basis of the new stock?

Answer 11

FMV

Question 12

What about dividends received as a partial/complete liquidation?

Answer 12

treated as ROC, then cap gain

Question 13

Will employee death benefits be taxed?

Answer 13

No

Question 14

Are gifts taxable?

Answer 14

No, unless its income generated by a property

Question 15

When is group insurance by employer taxable?

Answer 15

Any amount over 50k

Question 16

Are Employer contributions to HSA taxable?

Answer 16

No, they are excludable

Question 17

How much of “flexible spending account” can be carryover?

Answer 17

500

Question 18

When can benefits for physical injury or sickness be excludable?

Answer 18

1. Under worker’s comp
2. Compensatory damages from a suit/settlement
3. self purchased accident
4. contribution by the employee to accident/health plans
5. payments received under plan for med care

Question 19

Are improvements made by the tenant ( lessee) considered income?

Answer 19

No, unless the improvements are made in replace of rent

Question 20

Are pensions paid to retirees taxable?

Answer 20

No, unless they are payments made under the railroad retirement act or social security act

Question 21

What is deductible from illegal drugs trafficking?

Answer 21

Cost of Goods Sold

Question 22

When is interest received not taxable?

Answer 22

interest on state or municipal bonds

Question 23

Are life insurance payment out through death taxable?

Answer 23

No, but the interest is taxable

Question 24

Is the dividends on un-matured policies taxable?

Answer 24

No, unless the amount exceeds the premium or collected after the maturity of the policy

Question 25

How do we figure out how to tax social security benefits? Facts of the case
1. 60K of social security benefits - income
2. 8.4k of benefits
3. 1k interest on tax exempt obligations
which amount of social security is excludable from blake’s taxable income

Answer 25

lesser of 
1. .85%* of benefits received 
.85* 8400 = 7140
or
1.  Income + interest +.5 of social security -34k +(lesser of 1/2 social security or 3400)

8400-7140 = 1260 is excludable

Question 26

When is a gift/prize not taxable?

Answer 26

1. the taxpayer is selected through action of their own
2. the prize is transferred to a government/charity first
3. taxpayer do not need to perform any substantial future services
4. Award given for service as long as its not over 400