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Taxation of Individuals

by: Gerda Pacocha

Taxation of Individuals ACC 431

Gerda Pacocha
CSU Pomona
GPA 3.86

David Rice

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About this Document

David Rice
Class Notes
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This 3 page Class Notes was uploaded by Gerda Pacocha on Saturday October 3, 2015. The Class Notes belongs to ACC 431 at California State Polytechnic University taught by David Rice in Fall. Since its upload, it has received 6 views. For similar materials see /class/218398/acc-431-california-state-polytechnic-university in Accounting at California State Polytechnic University.


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Date Created: 10/03/15
Chapter 5 Fair market value of improvements made by a tenant to the landlord39s property should be included in landlord39s gross income Gifts Vountary transfer of property by one to another without adequate valuable consideration or compensation there from Must be made out ofaffection respect admiration charity or like impulses Any Gift made by an employee cannot be excluded as a gift and must be included in gross income Employee Death Benefits Payments to deceased employee39s surviving spouse children or other beneficiaries are included in income unless they meet the following criteria 1 Payments made to surviving spouse and children rather than to employee39s estate 2 The employer derived no benefit from the payments 3 The surviving spouse and children performed no services for the employer 4 The descendent had been fully compensated for services rendered 5 Payments were made following a general company policy of providing payments for families of deceased employees Life Insurance Proceeds Paid to the beneficiary because of the death of the insured are exempt from income tax Ifthe owner of life insurance policy cancels and receives the cash surrender value taxpayer must recognize gross income I Accelerated Death Benefits Person may receive life insurance proceeds without including into income if i Terminally ill is someone whom a medical doctor certifies as having an illness that is reasonably expected to cause death within 24 months ii Chronically ill is someone certified as being unable to perform without assistance certain activities of daily living I If life insurance is transferredfor valuable consideration the proceeds are includible in gross income unless A partner of the insured b A partnership in which the insured is a partner c A corporation in which the insured is an officer of shareholder d A transferee whose basis in the policy is determined by the reference to the transferor39s basis Scholarships They cannot qualify as gifts but are not compensation for services Peron receiving scholarship must be a candidate for a degree at an educational institution Amounts received for room and board are includible in gross income Timing The amount eligible for exclusion may not be known until money is received In that case the transaction is held open until the educational expense are paid Qualified Tuition Reduction Plans The plan may not discriminate in favor of highly compensated employee39s and is limited to undergraduate waivers A tuition substitute for cash compensation cannot be excluded Compensation for injuries and sickness I Personal Injury Any money received for injury related cases physical is excludable from income I Punitive Damages Are always included in gross income I Property Damage Not included in income unless expense was deducted Workers Compensation Worker39s compensation is not includable into gross income payments paid to employee who is injured on the job Accident and Insurance Benefits Benefits collected under an accident and health insurance policy are excludable if purchased by the taxpayer employee EmployerSponsored Accident and Health Plans Accident and health benefits disability insurance and longterm care the premiums are deductible by the employer and excluded from the employee39s income If the payments are for expenses that do not meet the code39s definition of medical care the amount received must be included in gross income nose job I Loss of the use of a member or function of the body or permanent disfigurement Any amount paid to employee for those reasons can exclude the amounts paid from income Medical Reimbursement Plans benefits received under a selfinsured plan can be excluded from the employee39s income if the plan does not discriminate in favor or highly compensated employee39s I Health Savings Account HSA Employee39s with high deductible plans can contribute each month to HSA up to the maximum contribution of 100 of the deductible amount Self coverage is limited to 112 of 3050 selfcoverage and 6150 Family coverage Long Term care insurance benefits Employee does not recognize income when the employer pays the premiums The exclusion from income is limited to the greater of the following 1 290 in 2010 for each day the patient receives the longterm care 2 The actual cost of care Any Amount received from 3rd party reduced the exclusion by amount received Meals and lodging The amounts provided to employee and employee39s spouse are excludible if 1 Mealslodging are furnished by the employer on the employer39s business premises for the convenience of the employer 2 The employee is required to accept the lodging as a condition ofemployment Partners are not considered employee39s Other Housing Exclusions 1 Employees of Educational Institutions may be able to exclude the value of campus housing provided by employer if heshe pays annual rents equal to or greater than 5 of the appraised value of the facility The difference if less than 5 is included in gross income 2 Ministers of the Gospel May exclude l rental value of a home furnished as compensation Z a rental allowance paid to them as compensation to the extent the allowance is used to rent or provide a home or 3 the rental value of a home owned by the minister 3 Military Personnel They are allowed housing exclusions under various circumstances Other mployee Fringe Benefits Following are excludable I Value of child and dependent care services paid for by the employee and incurred to enable the employee to work came mustbe by empmyee s andfam y members Quah ed emp nyerrpmwded educatmna assmance cemng msszsu rt 39 m and m r mam umaxame 39 H w r w mans sumo Bene t 39 Covsmge Allowed Disaimlnz on L Nuraddmunakost r r r r39 A rld39 N A serwces he emp oyer39s excess apamy envp oyees1heiv spnuses campensamd 29 flee passascaramina and dapundankh dmn employnus smalayaasp spousa ofdemased employeesranasuars lreaied as emproyses z QuaHhed dismunts Theemp uyeelinllowed m Same as m abuve Same as m 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Quah edrenrememplanning Cunememp oveesand Same asmabove rewemenl semicesthawre wowed by spnuses wanmng services he emmoyer 39 rmfr Mun amemfmefaunwsng A Bane Me resment unhecmagn country or cmmmes Frmamdnr n a spouse n q a y x mm y mg da 5 Ke ihzan extlude 91 SOONhuHGDIC sz aw Asunie Hmezd max any 335 daysweK nua iMr g days Then Kelth39sexdusion I hmlte 83930currpLxedastHDws39 2353 vs n re n um 39mm 3 7 9 m Vdauan ES dzys m the year m m n m n m m a w Dividends as u pay quah ed hxgher educatmn expenses BandsarexssuedafterDecember311989 Qualified Tuition Programs The amounts contributed must be used for higher education expenses These expenses include tuition fees books supplies room and board and equipment required for enrollment or attendance at a college university or certain vocational schools Tax Benefit Rule No income is recognized upon the recovery of a deduction or the portion of the deduction that did not yield a tax benefit in the year it was taken Income from Discharge of indebtedness Forgiveness of debt realizes income to the person who was supposed to pay it 534 Special treatment is allowed for following situations 1 P quotUquotJgtE quot Creditor39s gifts Discharges under Federal bankruptcy law Discharges that occur when debtor is insolvent Discharge of the farm debt of a solvent taxpayer Discharge of qualified real property business indebtedness A seller39s cancellation of the buyer39s indebtedness Forgiveness of certain loans to students Discharge of indebtedness on the taxpayer39s principal residence that occurs between January 1 2007 and January 1 2013 and is the result of the financial condition of the debtor If the creditor reduces the debt as an act of love affection or generosity the debtor has simply received a nontaxable gift rarely will a gift be found in a business context 535


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