R1 M2 - Gross Income: Part I Flashcards
(17 cards)
Federal Income tax Return
- Itemized deduction used in prior year means state or local refund is taxable
- Standard deduction used in prior year means state or local refund is not taxable
What is an accrued expense?
- When service has been received/performed but not been paid for by the end of the reporting period.
Gross Income:
- Money
- Property
- Bargain Purchase: If Employer sells property to an Employee for less than its fair market value, the difference is income to the EE
- Employer contribution to Roth 401K
- Portion of life insurance that exceeds $50,000
The employer reimbursement of 80% of the taxpayer’s moving expense (fringe benefit) increases taxable income, the expenses of moving are not deductible. It is only deductible when it’s a member of the U.S Armed Force.
Tax- exempt Interest Income
- Int earned on series EE bond issued after 1989 qualify for exclusion.
- It is used to pay higher education (reduced by tax-free scholarships) of the taxpayer, spouse or dependents.
- Taxpayer is over 24 when bond is issued.
- Married taxpayer files a joint return; (sole owner or joint owner of the bond)
- Meet certain income requirements.
Taxable Interest Income
- Interest from federal bonds
- Interest from industrial development as interest
- Interest from corporate bonds
- Installment sale is taxable
State tax refund is taxable if you use the itemized deduction in the prior year.
The interest on state tax refund or federal is always taxable income.
Interest on state government obligation is not taxable.
Interest on federal government obligation is taxable
Tax exempt Interest Income (Reportable but not taxable)
- Interest on state and local bonds/obligation is tax exempt.
- Mutual fund dividends invested in tax-free bonds are also tax-exempt.
-Bond of U.S Possession (Puerto Rico/ Guam) is tax-exempt.
-US EE Series saving bonds
Taxable Gross income
- Service rendered for something (Div income, stock, property)
- Employer provided medical insurance is a tax-free fringe benefit
Alimony received pursuant to a divorce decree executed before December 31, 2018 are received payment and are deductible to arrive at AGI.
Fringe benefit
–> Personal use of a company car: The value of personal use of a company car provided by your employer must be included in your income.
Exceptions to Penalty Tax (Still subject to ordinary income tax)
“him dead ted”
-Homebuyer (1st time): Distributed used toward the purchase of a first home within 120 days of distribution ($10,000 max).
-Insurance (medical if unemployed and within12 consecutive weeks of unemployment compensation)
- Medical expense in excess of percentage of AGI floor
- Disability (Permanent or indefinite disability, but not temporarily disabled)
-Education (College tuition, fees, books, etc)
- Adoption or birth of a child within 1 yr from date of birth ($5,000 max)
-Disaster: Qualified natural disaster ($22,000 maxi per disaster)
-Terminal illness/death
-Emergency exp ( personal/ family emergency up to $1,000)
-Domestic abuse victims (lesser of 10K or 50% of retirement account)
Premature distribution prior to 591/2 from traditional IRA is subject to a 10% penalty tax.
Interest income not taxable
-Interest Income from tax exempt municipal bonds: Often interest from municipal bond is exempt from federal income tax
Dividends: What to include –> Capital gain
Dividends: What not to include –> Return of capital
Income from Qualified Retirement Plans
- Distribution from traditional IRAs: Withdrawals from traditional IRA are generally fully taxable since its pre-tax.
- Pension and annuity payments: Regular payments from pensions and annuities are taxable.
- Roth IRAs conversions: The amount converted from Trad. IRA to Roth IRA is included in gross income.
- Nonqualified distribution from Roth IRAs: Withdrawals from earning in a Roth IRA that do not meet the qualified distribution criteria are taxable
Income from Qualified Retirement Plans: Not included
-Qualified distribution from Roth IRAs: withdrawals that meet the criteria for qualified distribution (at least 5yrs and account held until 59 1/2)
- Return of contribution from trad IRAs or 401k: If you withdraw contribution
- Loan from 401 K plans
-Rollover: Roll over distribution within 60days
Interest on US series EE savings bonds:
-If you file MFS your interest in added in gross income to be taxed.
Multiple Support Agreements to qualify as a dependent .
- more than 10% of the person’s support
- two or more must added up to over 50% contributions support of the person.
-Must be a qualifying relatives of (or lived the entire year) with the individual.
List some nontaxable miscellaneous income items (exclusions).
Examples of nontaxable miscellaneous income items:
Life insurance proceeds
Gifts and inheritances
Medicare benefits
Workers’ compensation
Personal (physical) injury or illness award
Accident insurance—premiums paid by taxpayer
Foreign-earned income exclusion
Name some nontaxable employee fringe benefits.
Meals and lodging (for convenience of employer on employer’s premises; lodging must be required as condition of employment)
Employer-paid education expenses and student loans
Employer-provided parking and transit passes
Qualified tuition reduction
Qualified employee discounts on employer-provided goods and services
Employer-paid accident, medical, and health insurance
Dependent care assistance
Adoption assistance
Life insurance coverage (up to $50,000)
Retirement plan contributions (traditional)
