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Flashcards in Additional Income Deck (42)
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1
Q

What does Schedule 1 Include?

A

Schedule 1 generally includes:

  • Farm
  • business
  • and rental income
2
Q

Refund of State And Local Income Taxes

Do taxpayer who itemize deductions get to take a deduction for state an local taxes (SLT).

A

Answer: Yes

  • Deduction is limited to $10,000
  • $5000 is MFS
3
Q

REFUND OF STATE AND LOCAL INCOME TAXES

When can taxpayer exclude the refund from income?

A

A taxpayer receives a SALT refund for income taxes paid in th prior year and in that case, the taxpayer may need to report the refund as ADDITIONAL INCOME on Schecule 1. The taxpayer can exclude the refund from income if the amount did not benefit the prior income tax return. Essentially, a refund is not considered to the extent of any disallowed deduction resulting from the overall limit on SALT

See Example

4
Q

REFUND OF STATE AND LOCAL INCOME TAXES

When is state refund not taxable?

A

None of the refund is taxable if, in the year the taxpayer paid the tax, the taxpayer didn’t do the following

  • Didn’t itemize deductions
  • Elected to deduct state an local general sales taxes instead of state and local income taxes.
5
Q

Alimony

Do property settlements or payments of court-ordered child support qualify for alimony?

A

Answer: No

Property settlements or payments of court-ordered child support are NOT alimony and do not qualify as income or deduction items.

The taxation of alimony payments will depend on when the divorce or separation instrument was executed or modified.

6
Q

Alimony

Agreements Executed After 2018

how did the Tax Cuts and Jobs act affect the payment of alimony and separate maintenance under a divorce or separate maintenance agreement?

A

TCJA provision executed after December 31, 2018, is no longer deductible by the payor spouse and no longer includible in income by the payee spouse.

The intent of the provision is to follow the rule of the United Stats Supreme Court’s holding in Gould v. Gould 245 US 151 (1917), in which the Court held that such payments are not income the recipient. Income used for alimony payments is taxed at the rates applicable to the payor spouse rather than the recipient spouse. Payments of alimony, effectively, under this provision will be handled in the same manner as child support, not deductible and not includible in income

7
Q

Agreements Executed in 2018 or earlier

A

Under prior rules, alimony is deductible by the payor and includible in the recipient’s income for a divorce or separation instrument executed on or before December 31, 2018

If a prior year agreement is modified after December 31, 2018 the tax treatment will follow the old rules unless the modification expressly states the repeal of the deduction for alimony payments applies to the modification or if the agreement is chaged to expressly provide that alimony received is not included in income, then the tax treatment will follow the new rules.

8
Q

Other Gains (Or Losses)

True or False

A taxpayer uses Form 4797 to report the sale or exchange of business property, certain involuntary conversions, the recapture of depreciation on certain business property that fall below 50% business use, and ordinary gains or losses of securities traders using the mark-to, market election

Some of the gains on Form 4797 are reported on Schedule D as long-term capital gain, while other gains are ordinary and reported as “other Gains or (Losses)” on Schedule 1.

A

True

9
Q

Unemployment

A

the IRS considers unemployment to be taxable

10
Q

Other Income

How is it handled on the tax return?

A

A taxpayer must include certain other sources of income on their tax return. If applicable, a taxpayer combines income from a variety of sources and reports as “other income” on Schedule 1.

11
Q

Bartering Income

A

Taxpayer must report the fair market value of property or services received in bartering as income. The fair market value should be determined at the time of the exchange.

12
Q

Bribes and Kickbacks

A

If a taxpayer receives bribe, kickback, side commission, push money, or similar payments, it must be included in incone on Schedule 1 as “Other Incoe” or on Schedule C if from a self-emplyment activity

13
Q

Canceled Debt

if a creditor cancels or forgives a debt, the debtor must report the canceled or forgiven amount as income. If the creditor intends the canceled debt as a gift or bequest, the debtor does not have to report i as income. A debt incudes any ndebtedness for which the taxpayer is liable or which attaches to property held by the taxpayer. Do NOT consider canedled debt as income in these cases:

A
  • Bankruptcy - Debt canceled in a title 11 bankruptcy case
  • Insolvency - immediately before the cancellation, liabilities exceed assets
  • Price reduction - When the seller reduces the taxpayer’s debt and the taxpayer is not insolvent or bankrupt.. The taxpayer reduces basis in the property by the amount of debt reduction see 108(e)(5)
  • Certain student loan indebtedness:
  1. Excluded if the creditor canceled the debt due to the performance of services
  2. Excluded if due to death or total and permanent disability. TCJA: Discharges of loans AFTER December 31, 2017 and before January 1, 2026
  • Qualified real property business indebtedness - Debt used to acquire construct or substantially improving a principal residence and secured by the principal residence. It also includes any debt resulting from the refinancing of such debt but only to the extend of the prior debt. Cash taken during refinancing is NOT qualified principal residence indebtedness.. Up to 2 million ($1 million MFS) may be excluded for debt discharged (or agreed to in writing) before January 1, 2021
  • Consolidated Appropriations Act Update: The Consolidated Appropriations Act,2021 extended the exclusion to discharges made before Jan 1, 2026, and reduced the exclusion amount to $750,000 ($375,000 married filing separate return) for discharges of indebtedness after Dec 31, 2021 through 2025
  • Qualified farm indebtedness - Deb directly related to the business of farming, and m ore than 50% of gross receipts for the past three years are from farming
14
Q

Gambling Winnings

Is a customer required to report gambling winnings

A

Answer: Yes

A taxpayer must report gambling winnings, such as lotteries and raffles, as income. In addition to cash winnings, the fair market values of bonds, cars, houses, and other non-cash prizes must be included as income

A taxpayer ma take gamboling losses as an itemized deduction on Schedule A but only to the extent of gambling winnings. The taxpayer may not report a net loss from gambling

15
Q

Hobby Income

What is the difference between hobby and business and must you report income from hobby?

A

Yes, taxpayers who make money from a hobby must report that income on their tax return.

If someone has a business, they operate the business to make a profit.

Factors degerming if business:

  • You carry on the activity in a businesslike manner,
  • The time an effort you put into the activity indicate you intend to make it profitable
  • you depend on the income for your livelihood
  • Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),
  • You change your methods of operation in an attempt to improve profitability
  • You (or your advisor) have the knowledge needed to carry on the activity as a successful business,
  • You were successful in making a profit in similar activities in the past
  • The activity makes a proit in some years, and
  • You can expect to make a future profit from the appreciation of the assets used in the activity
16
Q

How many years does IRS expect to show a profit?

A

With the exception of certain horse-related activities, the IRS presumes an activity is carried on for profit it it produced a profit in at least three of the last five tax years, including hte current year

17
Q

Can hobby expenses be deducted as miscellaneous itemized deduction?

A

Answer: No

Hobby expenses are no longer deductible as miscellaneous itemized deductions. The taxpayer must still report the income they receive on Schedule 1, Form 1040

18
Q

Illegal Activities

A

Income from illegal activities, such as money from dealing illegal drugs, must be included in income on Schedule 1 as “Other Income” or on Schedule C if from a self-employment activity

19
Q

Jury Duty Pay

Where/how is jury pay imputed

A

Compensation for jury duty is included in income on Form 1040. If the taxpayer must give the pay to an employer because the employer continues of pay a salary while serving on the jury the taxpayer may deduct the amount turned over to the employer as an adjustment to income

20
Q

Rental of Personal Property

A

Other income includes income from the rental of personal property if the taxpayer engages in the rental for profit but is not in the business of renting such property.

21
Q

Court Awards And Damages

The following are included as ordinary income

A
  • Interest on any award
  • Compensation for lost wages or lost profits i most cases
  • Punitive damages (punishment), it does not matter if related to a physical injury or sickness
  • Amounts received in settlement of pension rights (if the taxpayer did not contribute to plan)
  • Damages for one of the following:
  1. Patent or copyright infringement
  2. Breach of contract
  3. Interference with business operations
  • Back pay and damages for emotional distress under Title VII of the Civil Rights Act of 1964
  • Attorney fees and costs where the underlying recovery is included in gross income
22
Q

Do not include in income compensatory damages (compensation) for the following:

A
  • Person physical injury
  • Physical sickness, or emotional distress attributable to a physical injury or physical sickness.
23
Q

Prizes And Awards

Are such taxable?

A

If a taxpayer wins a prize in a lucky number drawing television or radio quiz program, beauty contest or other event, it must be included in income. For example, if a taxpayer wins $50 prize in a photography contest, the taxpayer must report this income. If the taxpayer refuses to accept a prize, its values is not included in income.

24
Q

Is money received from a bank upon opening an account taxable interest income?

A

Yes: The bank will report it on form 1099-INT

25
Q

Dr. Al-Matine practices medicine in the City of Walzone. This year she performed medical services on a local carpenter and charged him the normal fee of $3,000. He could not pay the entire amount so they agreed that he would pay her cash of $200 and also build her a new bookcase. The bookcase cost the carpenter $700 but had a fair value of $1,100. Dr. Al-Matine uses the cash basis to report income and expenses. When Dr. Al-Matine files her income taxes for the year, what amount should be included for the work done on the carpenter?

  • $200
  • $900
  • $1,300
  • $3,000
A

Answer: C - $1,300

EXPLANATION

Under normal situations, revenue reported for tax purposes is equal to the value of the items actually received. Here, the doctor received cash of $200 and a bookcase valued at $1,100 for a total earned income of $1,300.

26
Q

Paula received money from several sources during the year. She reports as income on her tax return all of the following EXCEPT:

  • $25 cash given to her by a bank for opening a new checking account.
  • $315 of tips she received from customers while working her part-time job as a waitress.
  • $1,200 of payments from her mother directly to Paula’s landlord for part of Paula’s rent.
  • A $500 reduction in rent by Paula’s landlord in exchange for Paula having painted the house in September.
A

Answer: C $1,200 of payments from her mother directly to Paula’s landlord for part of Paula’s rent.

EXPLANATION

If a person pays rent for a taxpayer, and that person does not have a business relationship with the taxpayer, the amount of rent is considered a gift and is not reported as income.

Money received from a bank upon opening an account is taxable interest income and the bank will report it on form 1099-INT. Reportable income also includes tips and a reduction of rent in exchange for services provided.

27
Q

Wyman Jones is employed during the day and had a salary this year of $49,000. During the evening, he runs a small business that he operates as a sole proprietorship. He made profits during his first three years of operation but had a net loss this year of $4,000. He also received $2,000 in unemployment compensation when he was out of work early in the year. He also received interest revenue of $5,000 from U.S. bonds. What is the impact of the unemployment compensation on his taxable income?

  • It is only taxable if you have other income
  • It is never taxable
  • It is taxable unless Congress gives a specific exclusion
  • The first $900 is tax free
A

Answer: C - It is taxable unless Congress gives a specific exclusion

EXPLANATION

Unemployment compensation has historically been taxable income. Although Congress has changed that rule for short periods of time or occasions.

28
Q

For 2021, payments of alimony under an unmodified pre-2019 divorce decree are:

  • Included in income of recipient
  • Excluded from income of recipient
  • Calculated as deductions from income of recipient
  • Categorized as a credit on recipient’s tax return
A

Answer: A - Included in income of recipient

EXPLANATION

Payments to a former spouse that meet the criteria of alimony are included in the gross income of the recipient if alimony was ordered in a pre-2019 divorce.

Payments of alimony and separate maintenance during 2021 from a divorce prior to 2019 that hasn’t been modified are deductible by the payor spouse and includible in income by the recipient spouse.

TCJA: The payment of alimony and separate maintenance under a divorce or separate maintenance agreement (or modifications to prior agreements that account for the new TCJA provision) executed after December 31, 2018, will no longer be deductible by the payor spouse and will no longer be includible in income by the payee spouse.

Alimony is deductible by the payor and includible in the recipient’s income for a divorce or separation instrument executed on or before 12/31/2018, even when payments are made after 2018. A modification after 12/31/2018 of such an instrument could have implications for the tax treatment of future payments.

29
Q

Patrice Giambanco entered and won the competition to be named the Citizen of the Year in her hometown based on the large number of good deeds that she had done. She was awarded a prize of $1,000 in cash. In addition, without any action on her part, she was named one of the top poets in the country and won another $3,000, which was paid to her in cash. What amount of this money will serve to increase her taxable income?

  • Zero
  • $1,000
  • $3,000
  • $4,000
A

Answer: D - $4,000

EXPLANATION

Prizes and awards are viewed as taxable income. This handling is not impacted by the efforts of the recipient to win. Thus, Ms. Giambanco must report both of these awards within her taxable income, both the one she tried to win and the one that she won with no direct action of her own.

30
Q

Abigail Van Buren is completing her tax return for the current tax year. She has received the following items from several different sources during the current tax year:

$3,000interest on U.S. treasury bonds$4,000interest on state of Montana bonds$14,000cash gift from former boyfriend$2,000fee for serving on jury duty$5,000prize for being named citizen of the year in her town$8,000alimony payment from ex-spouse$9,000child support payment from ex-spouse

Abigail was legally divorced in 2016, and her divorce agreement has not been modified. What is the total amount that she should report on her federal individual tax return as taxable income for the current tax year?

  • $15,000
  • $18,000
  • $27,000
  • $29,000
A

Answer: B - $18,000

Federal income tax laws are specific in most cases as to what income is taxable and what is not. The following items should be included in the taxpayer’s taxable income:

$3,000interest on U.S. treasury bonds$2,000fee for serving on jury duty$5,000prize for being named citizen of the year in her town$8,000alimony payment from ex-spouse$18,000taxable income

The other items are not taxable for federal income tax purposes: state and municipal bond interest of $4,000, cash gifts received of $14,000, and child support received of $9,000.

Alimony is deductible by the payor and includible in the recipient’s income for a divorce or separation instrument executed on or before 12/31/2018, even when payments are made after 2018. A modification after 12/31/2018 of such an instrument could have implications for the tax treatment of future payments.

TCJA: The payment of alimony and separate maintenance under a divorce or separate maintenance agreement (or modifications to prior agreements that account for the new TCJA provision) executed after December 31, 2018, will no longer be deductible by the payor spouse and will no longer be includible in income by the payee spouse.

31
Q

Gene Wingo had the following potentially taxable transactions during the current tax year. How much, if any, must he include in his income on his current year tax return?

  • $200 interest credited to his savings account in December. He did not withdraw any money from the account during the entire year.
  • A paycheck of $2,000, but the entire amount is withheld by his employer to satisfy a garnishment.
  • $1,000 discount given by his bank when he paid off his home mortgage five years early.
  • $500 check received December 31 from an individual for one of Gene’s original drawings. Gene didn’t cash or deposit the check until the next year.
  • $1,700
  • $2,700
  • $3,700
  • $3,200
A

Answer: $3,700

EXPLANATION

For cash basis taxpayers:

  • Savings account interest is income when received, even if not withdrawn.
  • Garnished income is taxable income to the person it was taken from.
  • The discount given by his bank when he paid off his home mortgage early is not a reduction in interest, but a reduction in principal. As such, it is a form of debt forgiveness and is taxable income. Canceled debts are income in the year canceled.
  • Income from the sale of personal property is taxable income in the year payment is received, even if check not cashed or deposited until the next year.

Note: The discount given by his bank when he paid off his home mortgage early is not excluded as qualified principal residence indebtedness. See Publication 4681 (Discounts and Loan Modifications and Qualified Principal Residence Indebtedness, Exclusion limit).

32
Q

Mr. Lucky wins $2,000 from gambling in 20X1. Unfortunately, he also loses $2,700 in other gambling activities. Mr. Lucky is single and has no dependents. He plans to take the standard deduction. What is the impact of his gambling activities on his taxable income for 20X1?

  • Increases taxable income by $2,000
  • Decreases taxable income by $700
  • Has no impact on taxable income
  • Increases taxable income by $2,000 but also decreases it by $2,000.
A

Answer: A - Increases taxable income by $2,000

EXPLANATION

The winnings from gambling activities are reported as taxable income. Losses are shown separately as miscellaneous itemized deductions. However, Mr. Lucky is taking the standard deduction rather than itemizing his deductions. Therefore, the losses have no impact. Only the winnings appear on the tax return for this year.

33
Q

Winston Albertson is an attorney who performs legal services for H & A Partnership during the current year. Near the end of the year, Albertson presents an invoice to H & A for $60,000 but offers to accept an immediate cash payment of $52,000. He is offered $2,000 in cash and an 8 percent interest in the partnership as payment in full. The interest has a fair value of $44,000. He accepts the offer. What is the impact on his taxable income for that year?

  • $2,000
  • $46,000
  • $52,000
  • $60,000
A

Answer B $46,000

EXPLANATION

For tax purposes, when work is done and an asset is received as payment other than cash, the assumption is that the fair value of this asset has been earned. Here, the fair value of the interest in the partnership is $44,000 and that should be recognized as taxable income by the taxpayer. The taxpayer also receives $2,000 in cash so the total amount earned is $46,000.

Discussion

This is an exam question from an actual prior IRS exam. All of the details necessary to answer the question are there and there aren’t any misleading grammatical mistakes.

The question doesn’t state that Winston accepted $52,000. After Winston provides the invoice for $60,000 he offers to accept an immediate cash payment of $52,000. Nothing indicates that the offer was accepted by H&A.

Instead, H&A offers (counteroffer) $2,000 in cash and an 8% interest in the partnership ($44,000) as payment in full.

He accepts the offer.

The offer accepted by Winston has a $46,000 value ($44,000 + $2,000).

34
Q

Melanie owns a cupcake business in a Cleveland shopping mall. She is a sole proprietor and therefore reports her income and expenses on a Schedule C of her personal tax return. Melanie had previously obtained a bank loan for some equipment that she stopped using in 20X1 when it broke down. She did not make any loan payments for 10 months and her bank canceled the $5,000 loan balance in 20X2. What does Melanie have to report as a result of this debt forgiveness in 20X2?

  • $5,000 of interest income
  • $5,000 as other income on Form 1040
  • $5,000 as income on Schedule C
  • $5,000 of short-term capital gain on Schedule D
A

Answer: C - $5,000 as income on Schedule C

EXPLANATION

The conditions for excluding canceled debt from gross income are the same for individuals and sole proprietors. The question does not indicate that she is bankrupt or insolvent, so we must presume none of these conditions are met.

To answer this question correctly, you must recognize that this is a business debt, and any resulting Cancellation of Debt (COD) income is reported on the business tax return. In the case of a nonfarm sole proprietorship, Schedule C, line 6).

Section 61(a)(11) of the Internal Revenue Code provides that gross income includes “income from discharge of indebtedness.”

The IRS has ruled that if the principal amount of an under-secured nonrecourse debt that arose out of the purchase of property is reduced by the holder of the debt who was not the seller of the property, this debt reduction may not be treated as a purchase price adjustment (in the absence of an infirmity that clearly relates back to the original sale), but results in discharge of indebtedness income under Code Sec. 61(a)(11). Source: Revenue Ruling 92-99.

The reduction of the principal amount of an under-secured nonrecourse debt who was not the seller of the property securing the debt results in the realization of discharge of indebtedness income. Source: Revenue Ruling 91-31

In this example, the creditor was not the seller of the property. If that had been the case, the statutory exclusion for reductions of purchase price debt would have caused this reduction to be treated as an adjustment to purchase price rather than as discharge of indebtedness income.

When a debt is compromised in a manner other than transferring the encumbered property, the debtor realizes discharge of indebtedness income in the amount by which the debt discharged exceeds the amount paid by the debtor.

35
Q

Dr. Al-Matine practices medicine in the City of Walzone. This year she performed medical services on a local carpenter and charged him the normal fee of $3,000. He could not pay the entire amount so they agreed that he would pay her cash of $200 and also build her a new bookcase. The bookcase cost the carpenter $700 but had a fair value of $1,100. Dr. Al-Matine uses the cash basis to report income and expenses. When Dr. Al-Matine files her income taxes for the year, what amount should be included for the work done on the carpenter?

  • $200
  • $900
  • $1,300
  • $3,000
A

Answer: C - $1,300

EXPLANATION

Under normal situations, revenue reported for tax purposes is equal to the value of the items actually received. Here, the doctor received cash of $200 and a bookcase valued at $1,100 for a total earned income of $1,300.

36
Q

Under what circumstances must a taxpayer include a forgiven debt in his total income?

  • When the debt was owed to his parent.
  • When the taxpayer is insolvent.
  • When the taxpayer includes it in his bankruptcy case.
  • When he negotiates settlement for less than face value with his 3rd-party lender.
A

Answer: D - When he negotiates settlement for less than face value with his 3rd-party lender.

EXPLANATION

If a debt is canceled or forgiven other than as a gift or bequest, the taxpayer must include the canceled debt in his income. If an outstanding loan is discharged in bankruptcy or canceled due to a taxpayer’s insolvency, then it is not included in the taxpayer’s income.

While there is a case for choice A (i.e., if the cancellation was not intended as a gift), choice D is the better option. Sometimes you must decide between two answers and you should always select the one that is correct under common circumstances.

37
Q

Gambling winnings are:

  • Included in income, but only the amount which is more than gambling losses
  • Included in gross income
  • Excluded from gross income unless $5,000 or more
  • Amounts used to offset gross income and recordable as credits
A

Answer: B - Included in gross income

EXPLANATION

A taxpayer must report gambling winnings as income. A taxpayer may take gambling losses as an itemized deduction on Schedule A but only to the extent of gambling winnings.

38
Q

Which of the following is included in a taxpayer’s gross income?

  • A loan from a bank for $10,000.
  • A line of credit from a bank of $10,000.
  • A forgiven bank loan of $10,000.
  • A $10,000 bank loan that was discharged in bankruptcy.
A

Answer: C - A forgiven bank loan of $10,000.

EXPLANATION

If a debt is canceled or forgiven other than as a gift or bequest, the taxpayer must include the canceled debt in his income. If an outstanding loan is discharged in bankruptcy or canceled due to a taxpayer’s insolvency, then it is not included in the taxpayer’s income.

39
Q

Which of the following situations requires the individuals named to report the funds received as taxable income?

  • Dean, who is given money for highway tolls by the passengers in his carpool.
  • Marilyn, who is given money by a real estate developer to influence her vote as a city council member for a new municipal football stadium.
  • Joey, who is given a subsidy by a public utility for purchase of energy efficient appliances for his home.
  • Peter, who inherits a 1951 Mickey Mantle baseball card from his deceased uncle.
A

Answer: B Marilyn, who is given money by a real estate developer to influence her vote as a city council member for a new municipal football stadium.

EXPLANATION

The bribe paid to Marilyn is income. In fact, all income from illegal activities must be reported on a taxpayer’s Form 1040, either on Schedule 1 as Other Income or on Schedule C. The money Dean receives from carpool passengers is a reimbursement. The subsidy paid to Joey by a public utility for energy conservation is excluded from income. Bequests, such as the one Peter receives, are also excluded from income—even if the bequest is cash.

40
Q

John is a cash basis taxpayer. He received the following items of income in Dec. 20X1:

  1. The loan on his truck was forgiven because he performed some accounting work for the dealer. He owed $2,000 at the time.
  2. He received a retainer of $500 from a new client to guarantee that his services would be available in February when the client would need help preparing financial statements.
  3. He finally received the $800 for work he completed in Nov. 20X0.

How much of this income must John include on his 20X1 tax return?

  • $ 500
  • $1,300
  • $2,500
  • $3,300
A

Answer: D - $3,300

EXPLANATION

The cancellation of the truck loan is in return for services provided to the lender and is considered income (payment for services). The retainer for future services is considered income in the year received, as is the money received in 20X1 for work completed in 20X0 (both under the constructive receipt rule). $2,000 + $500 + $800 = $3,300

41
Q

Lisa had $50,000 in wages from her day job. She received $40 as compensation for jury duty which she did not have to pay to her boss. She also received punitive damages of $10,000 for a lawsuit against a doctor for malpractice. How much is her gross income?

  • $50,000
  • $49,960
  • $60,040
  • $50,040
A

Answer: C - $60,040

EXPLANATION

Compensation for jury duty is included in income. If the taxpayer must give the pay to an employer because the employer paid a salary while serving on the jury, he may deduct the amount as an adjustment to income. Punitive damage awards, whether due to physical injury or illness, are included in ordinary income.

42
Q

Bart McHenry likes to gamble and has won money several times during the year but lost money during other periods. What are the tax consequences of these gains and losses?

  • Gambling winnings are included as taxable income but gambling losses are other itemized deductions but only up to the amount reported as winnings.
  • Gambling winnings and losses are netted with a net gain being taxable and a net loss being deductible as an itemized deduction.
  • Gambling winnings and losses are netted with a net gain being taxable but a net loss is not deductible.
  • Gambling winnings and losses are netted with a net gain being taxable and a net loss being reported as a short-term capital loss.
A

Answer: A - Gambling winnings are included as taxable income but gambling losses are other itemized deductions but only up to the amount reported as winnings.

EXPLANATION

Winnings from gambling activities are reported within the income of the taxpayer. Losses are shown as Other Itemized Deductions. However, the losses deducted cannot exceed the amount of gambling winnings being reported.

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