2008_CCH_Essentials_TS04

2008_CCH_Essentials_TS04 - 43 Chapter 4 Gross Income...

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43 Chapter 4 Gross Income Exclusions and Deductions for AGI Teaching Suggestions Frequently, students have difficulty identifying which employee fringe benefits are subject to the discrimina- tion rules. The table below shows nine groups of employee fringe benefits. To help students understand these benefits, and the discrimination rules, place the names of the table’s two major headings at the top of the chalkboard or an overhead. Then, call on a student to name one employee fringe benefit. If the student provides an example of a specific benefit, ask if it fits into a broader group of benefits. If the student answers yes, ask which group. Try to help the student fit the specific benefit into a broad group. After some questioning, enter the benefit on the chalkboard. Then, ask the student what happens when the discrimination rules apply. Finally, ask the student if the discrimination rules apply to the named benefit. Continue the questioning with another student until you have completed the table below. Benefits Effect of Discrimination De minimis fringe benefits None Key and highly paid employees taxed Dependent care assistance on benefits Key and highly paid employees taxed Educational assistance on benefits Key and highly paid employees taxed Group-term life insurance on benefits Key and highly paid employees taxed Health and accident insurance on benefits Key and highly paid employees taxed No-additional-cost services on benefits Key and highly paid employees taxed Qualifying employee discounts on benefits Free parking None Working condition fringes None Solutions to Questions and Problems 1. a. Because Saints lives in London for 330 days during a 12-month period, she qualifies for the foreign earned income exclusion in 2007 and 2008. Since she worked only part of the year in London during these years, she must prorate her foreign earned income exclusion as shown below (keep in mind that 2008 is a leap year). 2007: $85,700 × 298/365 = $69,969 2008: $85,700 × 229/366 = $53,621 In 2007, Saints will include $30,031 in gross income ($18,000 U.S. source income + $12,031 ($82,000 − $69,969) foreign source income. In 2008, she will include $71,379 ($48,000 U.S. source income + $23,379 ($77,000 − $53,621) foreign source income). ¶401.02. b. Although technically an exclusion from gross income, the foreign earned income exclusion is reported as an adjustment to income on Form 1040, page 1. ¶401.02. Chapter 4
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44 Essentials of Federal Income Taxation c. Saints can forgo the exclusion and elect to be taxed on 100% of her worldwide wages. She can then claim a foreign tax credit for taxes paid to foreign governments during the year on her foreign source income. ¶401.02. 2. a. Because Roche lived in Rome for 330 days during a 12-month period, he can exclude a portion of his
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This note was uploaded on 04/28/2008 for the course ACCT 210 taught by Professor Lloyd during the Spring '08 term at Lock Haven.

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2008_CCH_Essentials_TS04 - 43 Chapter 4 Gross Income...

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