Module 2: Gross Income Part 1

Question 1

Alimony

Answer 1

• pmt legally required pursuant to written divorce agreement
• pmts must be in cash or its equivalent (on behalf of the ex-spouse: credit card bills or college fees
• pmts can not extend beyond the death

Question 2

Interest income

Answer 2

state & local government bonds/obligations is tax exempt.

interest paid by the federal or state government for LATE Payment of a TAX REFUND is TAXABLE.

Question 3

Capital loss

Answer 3

maximum deductible is $3000 when computing AGI

Question 4

Penalty tax for early withdrawal of a Traditional Nondeductible IRA

Answer 4

10 percent + marginal tax rate

Rule: withdrawals over the age of 59 and a half are subject to ordinary income

Question 5

Exception to Penalty Tax of an traditional non deductible IRA

Answer 5

HIMDEAD

Home
Insurance (medical)
Medical expenses in excess of 10 percent
Disability
Education
And
Death

Question 6

State & Local tax refund

Answer 6

receipt of state or local income tax refund in a subsequent year is not taxable if the taxes paid did not result in a tax benefit in the prior year.

Itemized in prior year = state or local refund is taxable
Standard deduction = nontaxable state or local refund

Itemized deduction recovered in a subsequent year is included in income in the year recovered. The recovery is limited to the amount actually deducted (and not to the entire amount of the state tax refund)

Question 7

Portion of Life Insurance Premiums are taxable

Answer 7

Premiums above the first $50,000 coverage are taxable income

Question 8

Annuities

Answer 8

Treat investment paid as depreciation. The $$ investment is divided by a factor representing the number of months in which the investment will be recovered.

Question 9

Life insurance proceeds

Answer 9

Life insurance of an officer when the corporation is the owner and beneficiary are not reported as taxable income of the corporation

Question 10

Non accountable plan

Answer 10

Rule: any amounts received by an employee from the employer must be reported by the as part of wages on the employees W-2 for the year (and subject to income tax withholding requirements.)

Rule: any expenses taken against the gross amount received in a nonaccountable plan are considered miscellaneous itemized deductions and are subject to the 2% AGI limitation.