Ch 4

Question 0

Unrealized income

Answer 0

Unrealized gains from appreciation in property value

Question 1

5 items not considered income

Answer 1

1 addition obtained by loan
2 unrealized income
3 self-help income
4 rental value and personal use property
5 gross selling price of property (as opposed to gain on sale)

Question 2

Self help income

Answer 2

Exchange of services between 2 individuals

Ex. Doing taxes for house painter in exchange for getting
House painted (increases value, but goes untaxed)

Question 3

Rental value of personal use property

Answer 3

Taxpayers aren’t taxed on rental value of personally owned property

Question 4

Item that isn’t taxes: selling price of property

Answer 4

If property is sold at gain, gain and not entire sales price

Is taxable

Question 5

1) Intervivos gifts

2) testamentary transfers

Answer 5

1) Gifts received during the life of the donor

2) transfers at death: bequests, devises and inheritances

Question 6

Determining whether transfer is gift

Answer 6

Depends on intent of donor

Question 7

Life insurance proceeds, interest on life insurance proceeds

Answer 7

Paid to person due to death aren’t taxable

Interest on life insurance proceeds is taxable

Question 8

What is the exception where life insurance proceeds might get taxed?

Answer 8

When you purchase a life insurance policy for cash from

Another individual instead of directly from insurance co.

Question 9

Surrender or sale of life insurance policy

Answer 9

Taxable if sold before death of insured

Amounts exceeding net premiums paid are taxable

Question 10

Dividends on life insurance and endowment policies, how is interest treated on dividends left with insurance company?

Answer 10

Normally not taxable because considered partial return of
Premiums paid

Dividends are taxable if received while exceeding premiums
paid,

if dividends are left with insurance company interest is taxable

Question 11

Accelerated death benefits: life insurance

Answer 11

Include payments made to terminally ill patients (physician
Says person likely to die in 24 months)

Non taxable

Question 12

Meritorious achievement awards

Answer 12

To exclude award from tax for meritorious achievement

Award must not come in possession of taxpayer

Question 13

3 conditions for non taxable meritorious award achievement

Answer 13

1 was selected w/out action on his part to enter proceeding

2 does not have to perform substantial future services as
Condition for receiving prize
3 designates payor is to pay amount of award to government
Or charitable organization

Question 14

Scholarships and fellowships

Answer 14

Covering tuition, fees, books, supplies, equipment are
excluded from taxes

Scholarships that cover room, board and laundry, salary paid and required by school aren’t Excluded from taxes

Question 15

Distributions from qualified tuition plans (QTP) AKA Section 529 plans

Answer 15

Withdraw from plans tax free if used for higher education
Expenses of tuition, books, fees, supplies, equipment,
Room and board

No income limitation on these plans

Any income from plans not used for qualified expenses is
Included in beneficiary’s gross income and subject to
10% penalty

Question 16

3 important features of QTP

Answer 16

1 change beneficiaries without tax consequences
2 exclusion permitted under section 529 must be reduced
By any amounts used to claim American opportunity tax
Credit or lifetime learning credit
3 can’t contribute more than $14,000/year per beneficiary

Question 17

Payments on injury and sickness

Answer 17

damages (other than punitive damages) Received on
physical injuries or sickness is excluded From tax

Taxpayers may exclude reimbursements for medical
Expenses related to nonphysical injuries (emotional)

Question 18

If an employer pays half the benefits for an employee?

Answer 18

The part the employer pays isn’t taxable

The part the employee pays is taxable

Question 19

Employee fringe benefits tax law

Answer 19

Allows employer to deduct cost of benefit, permits
employee to exclude benefit from gross income

Fringe benefits that qualify include: employee insurance,
Sec. 132 benefits, meals, lodging, dependent care, meal plans

Question 20

Employer paid insurance: employers may deduct premiums paid for…

Answer 20

Life, health, accident and disability insurance

Question 21

Which employer paid insurance policies are excluded from employee income? Which are generally taxable?

Answer 21

Medical, health, group term life insurance (generally life
Insurance is included)

Disability is generally taxable

Question 22

Medical and health premiums: premiums paid by employer

Answer 22

Premiums not included in employee’s gross income

Premiums deductible by employer

Question 23

Medical and health premiums: premiums paid by employee

Answer 23

Premiums deductible as medical expense subject
To 7.5% of AGI limitations, increases to 10% for
Most tax payers 2013

Question 24

Medical and health Benefits: premiums paid by employer

Answer 24

Excluded from employee's gross income except when | Benefits exceed actual expenses

Question 25

Medical and health Benefits: paid by employee

Answer 25

Excluded from gross income

Question 26

Disability premiums: paid by employer

Answer 26

Premiums not included in employees gross income Premiums deductible by employer

Question 27

Disability premiums: paid by employee

Answer 27

Not deductible

Question 28

Disability benefits: paid by employer

Answer 28

Included in employee's gross income May qualify for credit for elderly and disabled

Question 29

Disability benefits paid by employee

Answer 29

Excluded from gross income

Question 30

Life insurance premiums: paid by employer

Answer 30

Included In employee's gross income (except group term Life insurance) Premiums deductible by employer assuming employer Isn't beneficiary

Question 31

Life insurance premiums: paid by employee

Answer 31

Not deductible

Question 32

Life insurance benefits: paid by employer

Answer 32

Excluded from gross income

Question 33

Life insurance benefits: paid by employee

Answer 33

Excluded from gross Income

Question 34

Eligibility test for discrimination

Answer 34

5 highest paid officers, 10% or greater shareholders | And highest paid 25% of employees

Question 35

Non discrimination requirements

Answer 35

If benefits plan discriminates in favor of highly compensated Employees, these employees must include benefits in Gross income

Question 36

To qualify for group term life insurance premiums for exclusion... Requirements for coverage?

Answer 36

Broad coverage of employees is required Coverage must bare uniform relationship to each employee's Compensation

Question 37

When must group life insurance be included in gross income?

Answer 37

When it exceeds $50,000

Question 38

7 section 132 fringe benefits

Answer 38

``` 1 no additional cost benefits 2 qualified employee discounts 3 working condition benefits 4 de minimis 5 qualified transportation 6 recreation and athletic facilities 7 educational assistance ```

Question 39

Section 132 fringe benefit: no additional cost Availability?

Answer 39

Telephones, unused hotel rooms, unused airline seats Available to employees, spouses, dependents, retirees

Question 40

Section 132 fringe benefit: qualified employee discounts Availability?

Answer 40

Discounts on merchandise sold by employer Employees, spouses, dependents, retirees

Question 41

Section 132 fringe benefit: working condition Availability?

Answer 41

Free magazines, outplacement, memberships Employees

Question 42

Section 132 fringe benefit: deminimis Availability?

Answer 42

Free coffee, holiday turkeys, use of company eating facilities Employees

Question 43

Section 132 fringe benefit: qualified transportation Availability?

Answer 43

Transit passes, tokens, parking Employees

Question 44

Section 132 fringe benefit: recreation and athletic facilities Availability?

Answer 44

Gyms, pools, saunas, tennis courts Employees, spouses, dependents, retirees

Question 45

Section 132 fringe benefit: educational assistance Availability?

Answer 45

Employees and former employees

Question 46

Qualified plan awards and Employee Achievement Awards

Answer 46

Qualified plan awards are limited to $1,600 $400 on avg. Must be presented as an award Must be tangible

Question 47

Meals and entertainment

Answer 47

Can deduct 50% of cost for tax purposes

Question 48

Employee death benefits

Answer 48

Usually taxable unless it is a gift Deductible for employer if it's taxable income

Question 49

Dependent care assistance programs

Answer 49

Employer financed programs that provide care for employee's children or other dependents Employee may exclude up to $5000 of assistance each yr. ($2500 for married filing separate)

Question 50

Qualified adoption expenses

Answer 50

Employee may exclude $12,970 from gross income Of qualified expenses paid for adoption of child under 18 Exclusion is phased out for high income earners

Question 51

Educational assistance

Answer 51

Employers that pay employee education expenses May exclude from gross income annual payments of $5,250 Exclusion applies to payments for tuition, fees, books, Supplies and training equipment

Question 52

cafeteria plans AKA flexible spending accounts

Answer 52

Offer employees option of choosing cash or statutory non taxable fringe benefits (medical, group life insurance, Adoption expenses, child care, etc.) Cash is taxable, statutory benefits are excluded from Gross income if chosen

Question 53

What is the maximum amount employees can elect to contribute to tax free flexible spending account for healthcare?

Answer 53

$2,500

Question 54

Availability of tax favored fringe benefits to owners

Answer 54

Not as available for partners, shareholders, S corporation shareholders that own more than 2% Can deduct fringe benefits for AGI only C corporations are eligible for tax favored fringe benefits

Question 55

Fringe benefits for partners, proprietors and owners: what taxes are they subject to

Answer 55

FICA and self-employment taxes

Question 56

Foreign tax credit

Answer 56

US citizens may subtract taxes they pay to foreign | countries from their US tax liability

Question 57

Option of foreign earned income exclusion

Answer 57

Can exclude first $97,600 per spouse in 2013 of foreign earned income From gross income

Question 58

Foreign earned income

Answer 58

Includes individual's earnings from personal services | Rendered in a foreign country

Question 59

Qualifying for foreign earned income exclusion, what sources of income don't qualify for the exclusion?

Answer 59

Taxpayer must be resident or abroad in 1 or more countries For 330 days during the period Pensions, annuities, salary paid by US government or Deferred compensation don't qualify for the exclusion

Question 60

Americans employed abroad, FICA taxation

Answer 60

Only pay social security tax if employed abroad by American | Company

Question 61

Income from discharge of debt

Answer 61

Forgiveness of debt is included in gross income unless | Given as gift from another individual

Question 62

Section 108: discharge on indebtedness (2 examples where indebtedness isn't taxable)

Answer 62

1 discharge occurs in bankruptcy 2 discharge occurs when taxpayer is insolvent

Question 63

Student loan forgiveness

Answer 63

Contingent on individual's performing certain public services Usually for governmental, charitable or educational organizations

Question 64

Home mortgage forgiveness sec. 108 (a)(1)(E)

Answer 64

Through 2013 homeowners may exclude debt forgiveness On principal residence of up to $2 million Only applies to mortgages acquired for improvement of Principal residences

Question 65

Exclusion for gain from small business stock

Answer 65

Exclusion on up to $10million ranging from 50%-100% exclusion Taxpayers don't have to recognize any gain if they reinvest Proceeds from sale of small business stock w/in 60 days Of sale

Question 66

Qualifying as a small business in the excluded capital gains transactions

Answer 66

Gross assets of under $50 million At least 80% value of assets must be used in conduct of 1 or more qualified trades or businesses

Question 67

Exclusion: gain from sale of personal residence

Answer 67

Taxpayers may exclude up to $250,000 ($500k married | Filing joint), on gain from sale of personal residence

Question 68

Exclusion: campus housing

Answer 68

Limited exclusion provided to employees of educational | Institutions when provided with on campus housing

Question 69

Exclusion: annuities paid to survivors of public safety officers

Answer 69

Survivors of firefighters, police officers killed in line of duty

Question 70

Exclusions: military

Answer 70

Exclude disability pay and combat pay, housing allowances | noncommissioned personnel only

Question 71

Exclusions: housing allowances ministers

Answer 71

Exclude rental value homes or rental allowance in connection | With religious duties

Question 72

Exclusions: foster care payments

Answer 72

Certain allowances to foster care providers excluded

Question 73

Exclusions: rural letter carriers

Answer 73

Exclude equipment maintenance allowance they receive for | Using their personal automobiles when delivering mail

Question 74

Exclusions: Roth IRA

Answer 74

Roth IRA distributions excluded from gross income

Question 75

Exclusions: Education IRA distributions

Answer 75

Qualified distributions form Coverdell Education Savings | Acct. IRAs are excluded from gross income

Question 76

Exclusions: personal foreign currency gains

Answer 76

Individuals excused recognizing gain from personal | Transaction of foreign currency under $200

Question 77

Employee fringe benefits

Answer 77

Deducted if reasonable amounts Employers receive small benefit because fringe benefits Not subject to social security or Medicare taxes