Gifts/Inheritances- Since 1913 you have been able to exclude from income the value of the property/gift from gross income. Nontaxable to donee (receiver) if: 1.) transfer is voluntary without adequate consideration and 2.) made out of affection, respect, admiration, charity, or donative intent. Inheritances are nontaxable to beneficiary (income earned on gifts or inheritances is taxable under normal rules). Transfers by employers to employees do not qualify as excludible gifts (could be excludible under other provisions, ex: employee achievement awards). Victims of a qualified disaster who are reimbursed by employer for living, funeral, and property damage can exclude. Employee death benefits: amount paid by employer to deceased employee’s spouse, child, or others. If decedent had a nonforfeitable right to payments (accrued salary), amounts are taxable to employee. However, can be Excludible if : paid to surviving spouse or children (not estate), employer derived no benefit from payments, family performs no services for employer, decedent had been fully compensated for services, and payments made pursuant to board of director’s resolution under a general company policy. Life Insurance Proceeds- Exempt income to beneficiary if paid solely due to death of insured, relationship is not determinative. Ex: Ashley will receive the proceeds of her spouses $1 mil life insurance policy. It calls for her to receive $110K/yr. for 10 yrs. What’s taxable? 10K/yr. (interest) is taxable. If the owner of the life insurance policy cancels the policy and receives the cash surrender value, they must recognize the gain in excess of the premiums paid in. Losses aren’t recognized. Treated as investment. Accelerated Death Benefits Exception- Gain can be excludible prior to death..if #1 or #2 is met: 1.) Terminally ill taxpayer- satisfies this if individual has an illness that is reasonably expected to cause death within 24 months. 2.) Chronically ill taxpayer- (exclusion limited to amounts used for long-term care) passes if certified as being unable to perform without assistance certain activities of daily living. Transfers for valuable consideration- proceeds are taxable to extent they exceed amount paid for policy by transferee plus subsequent premiums paid. Exceptions = transferring to insured, partner of insured, partnership in which the insured is a partner, corp where insured is shareholder. Scholarships/AGI-Student- amount paid to or for the benefit of a student to aid in pursuing a degree at an educational institution. Nontaxable to extent of tuition and related expenses (fees, books, supplies, and equipment required for courses), room and board are taxable. If the payments are in exchange for services rendered to the payer rather than merely to aid the recipient, the income cannot be excluded. Qualified tuition waivers or reductions by nonprofit educational institutions are excluded from income, generally limited to undergraduate tuition waivers. Exception for graduate teaching or research assistants
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