{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

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

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

Info icon This preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 4 Income- Exclusions Howard Godfrey, Ph.D., CPA UNC Charlotte Copyright © 2011, Dr. Howard Godfrey Edited September 3, 2011.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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.
Image of page 2
Introduction Human Capital Donative Items Workers' Compensation Gifts Damages for Injury Inheritances Health & Accident 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
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Donative Items Gifts Inheritances Life Insurance Scholarships
Image of page 4
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
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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?
Image of page 6
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 payments to Penelope and her child?
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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.
Image of page 8
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.
Image of page 9

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Life Insurance-2 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 $200,000 [($120,000 x 10) - $1,000,000]. As each payment on the policy is received, Bob will exclude $100,000 ($1,000,000 ÷ 10) and include $20,000 ($200,000 ÷ 10) in
Image of page 10
Scholarships-1.
Image of page 11

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern