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Unformatted text preview: 2010 CCH. All Rights Reserved. Chapter 3 41 Chapter 3 Gross Income Inclusions Highlights of 2010 Tax Changes In 2010, the kiddie tax applies to certain children with unearned income in excess of $1,900 (same as in 2010). All unemployment compensation received in 2010 is taxable. (In 2009, the f rst $2,400 of unemployment compensation was excluded from gross income.) Teaching Suggestions Review with your students that gross income includes gains from the sale of investment property. Point out that deductible losses from such transactions are not part of gross income. These losses are deductions from gross income to arrive at AGI. Students have problems understanding the tax bene f t rule. Place the formulas in the text on the board and review examples with the students. Solutions to Questions and Problems Wellabys gross income equals the cash and FMV (at the time of receipt) of the noncash items received. 1. Thus, Wellabys gross income is $50,485. 301. Cash $48,000 Produce 1,000 Common stock 1,000 Noninterest-bearing note 485 Gross income $50,485 a. As an accrual basis taxpayer, the insurance company can report the income over two tax years. In 20x1, it 2. reports $267 ($1,200/36 8 months). It reports the rest ($933) in 20x2. There is nothing to report in income in 20x3 or 20x4, even though some of the services will be provided in those years. 301.01. b. The ability to spread prepaid income over two tax years is a special rule that applies to accrual basis taxpayers. The rule regarding prepaid income for cash basis taxpayers requires that income is reported in the year received. Thus, the insurance company would report $1,200 in income in 20x1. 301.01. 303.02. 3. a. True. b. True. c. False. All tip income is subject to income tax. d. False. The assumed tipping rate is 8%. e. True. f. False. Employers do not withhold income, social security or Medicare taxes on allocated tips. Employees are responsible for paying these taxes. a. Conner must pay income taxes on the tips she receives. However, she will not pay social security or 4. Medicare taxes on the tip income and is not required to report them to her employer. She adds the $200 to her taxable wages when she f les her tax return. 303.02. 42 Essentials of Federal Income Taxation Chapter 3 2010 CCH. All Rights Reserved. b. Conner is responsible for income taxes on all tips she receives during the year. These amounts are added to her wages. She should report her tip income for May to her employer. Her employer then adds the tips to her taxable wages and withholds the proper amounts for income, social security and Medicare taxes. If Conner does not inform her employer of the tip income, she must f le Form 4137 and attach it to her tax return. The amount of social security and Medicare taxes she owes on those tips is computed on Form 4137. 303.02....
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This note was uploaded on 01/14/2012 for the course ECON 121 taught by Professor Mcdevitt during the Winter '10 term at UCLA.
- Winter '10