M2 Gross Income: Part 1

Question 1

Gross Income PASS KEY:
Event = Income Basis
Taxable
Nontaxable

Answer 1

Event = Income Basis
Taxable FMV FMV
Nontaxable NONE NBV

Question 2

Specific Income and Exclusion Items. What portion of life insurance premiums are taxable income to the recipient?

Answer 2

Premiums ABOVE $50,000 of coverage

$0.50 to every dollar over

Question 3

Nontaxable Fringe Benefits. Employer Payment of Employee’s Educational Expenses. Up to how much may be excluded from gross income?

Answer 3

$5,250

Question 4

Interest Income general rule is all is taxable. What are the four exceptions?

Answer 4

1) State and local government bonds/obligations
2) Bonds of a US possession
3) Series EE (U.S. Savings Bonds) - IF used to pay for higher ed, taxpayer of age 24 when issued, etc
4) Veterans Administration Insurance

*Interest received from the state when the issue a late refund IS TAXABLE

Question 5

Are state and local tax refunds taxable?

Answer 5

YES if itemized in prior year (because you got a benefit)

Question 6

Payments Related to a Divorce. Alimony - payments must be ___ and in ____

Answer 6

Legally required

Cash (or its equivalent)

Question 7

Is child support taxable?

Answer 7

NO

Question 8

If alimony or child support payments are cut short, which do the payments get applied to first?

Answer 8

Child Support

Question 9

In a divorce, property settlements are taxable or nontaxable?

Answer 9

NONTAXABLE

Question 10

Gains/Loss formula (Schedule D)

Answer 10

Amount realized

Gain or loss realized

Question 11

What is the penalty for early withdraw from IRA?

Answer 11

10%

Question 12

What are the exceptions to the early withdraw penalty from IRA? (MNEMONIC)

Answer 12

HIM DEAD
H = Home buyer - first time $10,000 maximum if
purchased within 120 days of distribution
I = Insurance (medical) - if unemployed w. 12 consec
weeks of unemployment comp or if self-employed
M = Medical expenses in excess of 10% AGI

D = Disability (permanent NOT temporary)
E = Edcuation 
A = AND
D = Death

Question 13

Is worker’s compensation taxable?

Answer 13

NO (unemployment comp is)

Question 14

Social Security Income. Who gets taxed and how much?

Answer 14

Basically in income order (low income under 25,000 for single have NO tax, upper income single 44,000 = 85%)

Question 15

Taxable Miscellaneous Income.

Prizes and Awards - how much? Exception?

Answer 15

FMV
Exception is if not actually entered in a contest but is selection and assigns the award directly to a governmental unit or charity

Question 16

Taxable Miscellaneous Income.

Gambling winnings and losses

Answer 16

Winnings - included in gross income

Losses - deducted on schedule A but only to extent of gambling winnings

Question 17

NONtaxable Miscellaneous Items.

Degree-Seeking Student - scholarships and fellowship grants included or excluded?

Answer 17

EXCLUDED only up to amounts spent on tuition, fees, books and supplies (NOT room and board)

Question 18

NONtaxable Miscellaneous Items.

Non-Degree Seeking Student

Answer 18

FULLY TAXABLE at FMV

Question 19

Life Insurance proceeds - taxable or nontaxable?

Answer 19

NONtaxable

Question 20

Gifts and inheritance - taxable or nontaxable?

Answer 20

NONtaxable

Question 21

Accident Insurance premiums - taxable or nontaxable?

Answer 21

NONtaxable