Basics and Gross Income

Question 1

What are the five types of taxpayers for filing purposes?

Answer 1

1. Single
2. Married filing jointly
3. Married filing separately
4. Head of household
5. Qualifying widow

Question 2

How is gross income defined?

Answer 2

All income from whatever source derived.

Question 3

What qualifies as income under Glenshaw Glass?

Answer 3

Any “accession to wealth, clearly realized, and over which the taxpayers have complete dominion.”

Question 4

What is adjusted gross income?

Answer 4

Gross income minus above-the-line deductions

Question 5

Is there adjusted gross income for corporations?

Answer 5

No

Question 6

What is the tax formula?

Answer 6

1. Gross income
   - above the line deductions
2. Adjusted Gross Income
   - below-the-line deductions OR standard deduction

• Personal exemptions
  3. Taxable Income

x tax rate

4. Tax liability

• Tax credits
  + additional taxes

FINAL TAX LIABILITY

Question 7

If services are paid for in property, how is the property valued as compensation?

Answer 7

FMV

Question 8

If services are paid for in services, how are the services valued as compensation?

Answer 8

FMV

Question 9

Are contributions to retirements included in gross income?

Answer 9

Generally not, provided they:

1. Are adequately funded
2. Do not discriminate against highly compensated employees
3. and guarantee employee entitlement through vesting requirements

Question 10

Is compensation received in the form of stock and option plans included in gross income?

Answer 10

No, not at the time that the stock is purchased

Question 11

Is restricted property subject to a substantial risk of forfeiture included in gross income?

Answer 11

No, an employee is not required to report the value of such property as income until substantially vested in the property

Question 12

Is unemployment compensation included in gross income?

Answer 12

Generally yes

Question 13

How is gross income calculated for a business?

Answer 13

In general, in the same way as for an individual

Question 14

When a business makes or sells goods, how is gross income calculated?

Answer 14

Inventory at the beginning of the year
+ Costs incurred during the year
- Inventory at the end of the year

= Gross Income

Question 15

Are gains from dealing in property included in gross income?

Answer 15

Yes

Question 16

Are retirement distributions included in gross income?

Answer 16

Generally yes. Divided into nontaxable and taxable portions

Question 17

Is interest income included in gross income?

Answer 17

Yes, except for

1. interest paid on state or local obligations and
2. interests from qualified U.S. saving bonds used to pay for higher ed

Question 18

Are dividends included in gross income?

Answer 18

Generally yes, but qualified dividends can qualify for capital gains treatment

Question 19

Are rents included in gross income?

Answer 19

Yes, unless from a vacation home rented for less than 15 days

Question 20

Is a security deposit included in gross income?

Answer 20

No, unless retained

Question 21

Are royalties from copyrights, patents, or leases included in gross income?

Answer 21

Yes

Question 22

What prizes or awards are not included in gross income?

Answer 22

1. Employment achievement award exclusion (gold watches) if not exceeding $400 ($1600 for a “qualified plan award”)
2. Employment recognition awards

Question 23

When are employment recognition awards excluded from gross income?

Answer 23

Excludable from gross income if:

1. Recipient took no action to receive the award;
2. Recipient directs award to a charitable organization; and
3. Recipient is not required to continue providing services.

Question 24

Is illegal income included in gross income?

Answer 24

Yes

Question 25

Is debt canceled in bankruptcy included in gross income?

Answer 25

No

Question 26

Is debt canceled as a gift included in gross income?

Answer 26

No

Question 27

Are discharges of debts generally included in gross income?

Answer 27

Yes, unless there is an exception

Question 28

If a principal residence mortgage is canceled, is that included in gross income?

Answer 28

No, if sold for less than the amount of the outstanding mortgage the homeowner can elect to exclude it from gross income

Question 29

Is partnership income included in gross income?

Answer 29

Yes, as a pass-through entity, a partner must report her share of ordinary business income or loss

Question 30

How are losses calculated with respect to partnership interests?

Answer 30

They are limited to the partner's basis at EOY.

Question 31

Is the sale of a partnership interest included in gross income?

Answer 31

Yes

Question 32

Are treasure troves, literal or not, included in gross income?

Answer 32

Yes

Question 33

When are employer-provided meals excluded from gross income?

Answer 33

If they are: 1. for the convenience of the employer; and 2. Provided on the employer's business premises

Question 34

What are some employer-provided fringe benefits excluded from gross income?

Answer 34

1. "No additional cost" services (e.g., standby flights) 2. Qualified employee discounts 3. Fringe like uniforms, parking spots, etc. 4. Retirement planning services

Question 35

Is an employer-provided health plan excludible from gross income?

Answer 35

Yes, along with reimbursements

Question 36

is employer-provided group term life insurance excludible from gross income?

Answer 36

Yes, if not exceeding $50,000 in value

Question 37

Are property transfers other than cash incident to a divorce included in gross income?

Answer 37

No; treated as a gift

Question 38

What basis does the recipient receive in property transferred incident to a divorce?

Answer 38

Carryover basis

Question 39

Are alimony and separate maintenance payments included in gross income?

Answer 39

No, if pursuant to an agreement executed after 2018

Question 40

Are inheritances included in gross income?

Answer 40

No

Question 41

Are damages for personal physical injury, including settlement payments, included in gross income?

Answer 41

No

Question 42

Is compensation for non-physical injuries, punitive damages, and damages for lost business profits included in gross income?

Answer 42

Yes

Question 43

Are life insurance proceeds included in gross income?

Answer 43

No

Question 44

Are annuities included in gross income?

Answer 44

The ROI is not, but the interest is

Question 45

Are social security benefits included in gross income?

Answer 45

No, provided recipient's income does not exceed base amount. Amounts in excess can be gross income

Question 46

Is money received as part of a contingent obligation included in gross income (Claim of Right Doctrine)?

Answer 46

Yes, but money required to repaid can be treated as a deduction in the appropriate tax year

Question 47

What kind of scholarships are included in gross income?

Answer 47

Tuition, books, supplies, and equipment are excluded from gross income Room and board are included in gross income, as well as any scholarship for services rendered or to be rendered

Question 48

When is the release of a debt not counted for gross income?

Answer 48

When done as a gift, i.e., not for exchange

Question 49

Are tax returns included in gross income?

Answer 49

Yes, if previously deducted. Under the Tax Benefit Rule, if an amount was deducted on a prior year's tax return which resulted in a reduction of tax and a tax benefit to the TP, then subsequent recovery must be included in gross income the year it is received. This cancels out earlier deductions.

Question 50

When is income recognized for uncashed checks and other instruments?

Answer 50

When received; it cannot be deferred by delaying realization of the check