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© Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 1.

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Presentation on theme: "© Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 1."— Presentation transcript:

1 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 1

2 Federal Income Tax Chapter 3

3 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 3

4 4 Gross Income Chapters 3 and 4 Inclusions and Exclusions General Concepts

5 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 5 Wherewithal To Pay Define See Problem 3-4 Problem 3-6 –Why? –Problems?

6 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 6 Wherewithal To Pay Problem 3-15 –Accounting? –Tax? Problem 3-42

7 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 7 Problem 3 - 42

8 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 8 Problem 3 - 42

9 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 9 Problem 3 - 42

10 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 10 Constructive Receipt Define in Problem 3-12 Examples Problem 3-35 –Pick 2 of 5

11 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 11 Examples of Income Problem 3-44

12 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 12 Problem 3 - 44

13 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 13 Problem 3 - 44

14 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 14 Problem 3 - 44 SS

15 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 15 Examples of Income Problem 3-44 Problem 3-45 –Long way –Short cut

16 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 16 Problem 45 a. Determine “multiple” from table: 58 yr old = 25.9 $500 x 12 mo x 25.9 yrs =$155,400 Less: Cost (excluded) 40,000 Amount to INCLUDE$115,400

17 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 17 Problem 45 a. Total$155,400100% Exclude 40,00025.7% Include$115,40074.3% THEN $500 x 12 mo x 25.7% = $1,542 will be excluded

18 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 18 Problem 45 b. After age 84? 100% would be INCLUDED Ch 4

19 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 19 Social Security Benefits 1984 excluded up to 50% included 1993 up to 85% included

20 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 20 Social Security Benefits None Base 1 Some Base 2 More

21 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 21 Social Security Benefits No SS benefits included in GI Base 1 Lesser of: ½ SS benefits ½ (PI – Base 1) Base 2 Lesser of: 85% of SS benefits 85% (PI – Base 2) + lesser of Maximum ½ SS

22 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 22 Social Security Benefits No SS benefits included in GI Base 1 Lesser of: ½ SS benefits ½ (PI – Base 1) Base 2 Lesser of: 85% of SS benefits 85% (PI – Base 2) + lesser of Maximum ½ SS

23 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 23 Social Security Benefits S = $25,000; MFJ = $32,000Base 1 Base 2 S = $34,000; MFJ = $44,000

24 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 24 Provisional Income AGI (without SS) +Tax Exempt Interest +Excluded Foreign Income +½ SS Benefits =Provisional Income

25 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 25 text page 3-32

26 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 26 Social Security Benefits Problem 3-47

27 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 27 Problem 47 (a)

28 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 28 Problem 47 (a)

29 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 29 Social Security Benefits S = $25,000; MFJ = $32,000Base 1 Base 2 S = $34,000; MFJ = $44,000

30 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 30 Social Security Benefits No SS benefits included in GI Base 1 Lesser of: ½ SS benefits ½ (PI – Base 1) Base 2 Lesser of: 85% of SS benefits 85% (PI – Base 2) + lesser of Maximum ½ SS

31 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 31 Problem 47 (a)

32 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 32 Problem 47 (a)

33 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 33 Problem 47 (a) $750

34 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 34 Problem 47 (a) $750

35 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 35 Problem 47 (b)

36 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 36 Problem 47 (b)

37 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 37 Social Security Benefits S = $25,000; MFJ = $32,000Base 1 Base 2 S = $34,000; MFJ = $44,000

38 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 38 Social Security Benefits No SS benefits included in GI Base 1 Lesser of: ½ SS benefits ½ (PI – Base 1) Base 2 Lesser of: 85% of SS benefits 85% (PI – Base 2) + lesser of Maximum ½ SS

39 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 39 Problem 47 (b)

40 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 40 Problem 47 (b)

41 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 41 Problem 47 (b)

42 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 42 Problem 47 (b) $4,250

43 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 43 Social Security Benefits Problem 3-47 Problem 3-49

44 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 44 Social Security Benefits S = $25,000; MFJ = $32,000Base 1 Base 2 S = $34,000; MFJ = $44,000

45 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 45 Social Security Benefits No SS benefits included in GI Base 1 Lesser of: ½ SS benefits ½ (PI – Base 1) Base 2 Lesser of: 85% of SS benefits 85% (PI – Base 2) + lesser of Maximum ½ SS

46 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 46 Social Security Benefits Problem 3-47 Problem 3-49 –check figures a.= $1,500 b.= $1,500 c.= $2,550 Problem 3-48 –Decision

47 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 47 Social Security Benefits No SS benefits included in GI Base 1 Lesser of: ½ SS benefits ½ (PI – Base 1) Base 2 Lesser of: 85% of SS benefits 85% (PI – Base 2) + lesser of Maximum ½ SS Q45

48 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 48 Chapter 4 Meals and lodging? –Problem 4-16 Premiums by employer? –Problem 4-13 “Benefits” included?

49 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 49 Problem 4 - 13 Insurance premiums paid by ER a.b.c. Benefits received included?

50 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 50 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b.c. Benefits received included?

51 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 51 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included?

52 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 52 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included?

53 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 53 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included? Medical Disability Life

54 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 54 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included? Medical Yes Disability Life

55 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 55 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included? Medical YesNo Disability Life

56 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 56 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included? Medical YesNo Disability Life

57 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 57 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included? Medical YesNo Disability Yes Life

58 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 58 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included? Medical YesNo Disability YesNo Life

59 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 59 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included? Medical YesNo Disability YesNoYes Life

60 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 60 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included? Medical YesNo Disability YesNoYes Life Yes*

61 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 61 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included? Medical YesNo Disability YesNoYes Life Yes*No*

62 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 62 Group Term Insurance Premiums Paid by ER $50,000 of coverage NOT included excess prem INCLUDED

63 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 63 Problem 4 - 13 Insurance premiums paid by ER a. May ER deduct? b. Must EE include? c. Benefits received included? Medical YesNo Disability YesNoYes Life Yes*No*No

64 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 64 Chapter 4 Meals and lodging? –Problem 4-16 Premiums by employer? –Problem 4-13 “Benefits” included? Group term? –Problem 4-14 (not key employees)

65 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 65 Group Term Insurance Premiums Paid by ER $50,000 of coverage NOT included excess prem INCLUDED

66 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 66 Chapter 4 Meals and lodging? –Problem 4-16 Premiums by employer? –Problem 4-13 “Benefits” included? Group term? –Problem 4-14 (not key employees) –Problem 4-44 (by “inspection” only)

67 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 67 Life Insurance Proceeds at death –Problem 4-35 Include $4,000 ($20,000 - $16,000) None included Include $2,500 [$15,000 – ($50,000/4 = $12,500)] –Problem 4-45 None – all excluded $9,000 included [$14,000 – ($100,000/20=$5,000)]

68 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 68 Life Insurance Any exceptions? –Problem 4-36 Include $5,000 ($20,000 - $6,000 - $9,000) No (because she would have his “rights”) “Dividends” –Problem 4-38

69 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 69 What are “dividends” on life insurance? Are life insurance premiums deductible? –NO Are “refunds” of premiums includable? –NO

70 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 70 Problem 4 - 38 $8,000 premiums deductible? –NO $6,000 dividends received included? –NO Interest on accumulated dividends? –Included b. Div = $9,000? –Then $1,000 included.

71 © Copyright 2003-2012 by M. Ray Gregg. All rights reserved. 71 Include or Exclude? Death Benefits –Problem 4-48 For past services – deductible Includable as GI Gifts –Problem 4-34 Prizes –Problem 4-39 Pensions

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