T11F-Chp-04-1-Income-Exclusions-2011

T11F-Chp-04-1-Income-Exclusions-2011 - Chapter 4 Income-...

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Chapter 4 Income- Exclusions Howard Godfrey, Ph.D., CPA UNC Charlotte Copyright © 2011, Dr. Howard Godfrey Edited September 3, 2011.
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1. Donative Items Gifts, Inheritances, Life insurance proceeds, Scholarships 2. Employment related income Foreign earned income, Payments made by employer [fringes], Employee benefit plans. 3. Returns of Human Capital Workers comp., Damages for injury, Payments from health and accident plans. 4. Investment related Exclusions Municipal bond interest, Stock dividends, Discharge of debt, Improvements by lease.
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Introduction Human Capital Donative Items Workers' Compensation Gifts Damages for Injury Inheritances Life Insurance Investments Scholarships Municipal Bond Interest Work-Related Stock Dividends Foreign-Earnings Discharge of Debt Payment by employer Improvement by Lessee Employee Benefit Plan Summary 4. Income: Exclusions
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Donative Items Gifts Inheritances Life Insurance Scholarships
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Exclusions Gifts Inheritances Life Insurance Proceeds received are tax-free but any interest income on proceeds is taxable Inside buildup (increase in cash surrender value) is not taxable income unless policy is liquidated for more than premiums paid
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Gifts Mickey was given 2 tickets to the World Series by a friend. Mickey sold the tickets for $500 each. What is the tax impact of these events?
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Death Payments Bob, a manager for Petros Pizza (PP), dies in an accident on July 12. PP pays his wife, Penelope, $600 in salary that had accrued before Bob died. Bob was covered by a $90,000 group term life insurance policy, which is also paid to Penelope. In addition, the board of directors of PP authorizes payment of $6,000 to Penelope and $4,000 to their child in recognition of Bob's years of loyal service to the company. What are the tax consequences of the
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Death Payments Penelope has $6,600 ($600 + $6,000) of gross income. Death benefit payments are fully taxable. Penelope must include in income the $6,000 she receives from PPP due to Bob’s loyal service and the $600 salary Bob earned prior to his death. The receipt of the $90,000 life insurance proceeds is excluded. Her daughter must include in income the $4,000 she receives from PPP.
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Life Insurance-1 Allison dies during the current year. She is covered by a $1,000,000 life insurance policy payable to her husband Bob. Bob elects to receive the policy proceeds in 10 annual installments of $120,000. Explain the tax consequences of the receipt of each installment.
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Life insurance proceeds are excluded from tax. The $1,000,000 face value of the policy is excluded as it is received. The earnings on the policy during the time it is held by the insurance company are not excludable. The total interest earned is
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This note was uploaded on 03/09/2012 for the course ACCT 4220 taught by Professor Burton during the Spring '08 term at UNC Charlotte.

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T11F-Chp-04-1-Income-Exclusions-2011 - Chapter 4 Income-...

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