Untitled Deck

Question 1

What is gross income under IRC §61(a)?

Answer 1

Gross income includes all income from whatever source derived unless specifically excluded by law.

Question 2

All-inclusive definition of income

Answer 2

Everything is income unless Congress provides an exclusion.

Question 3

Can income be received only in cash?

Answer 3

No, income can be cash, property, services, or other benefits.

Question 4

Three requirements for recognizing income

Answer 4

Economic benefit, realization, and no exclusion or deferral applies.

Question 5

Economic benefit definition

Answer 5

An increase in wealth or receiving something of value.

Question 6

Are loan proceeds income?

Answer 6

No, loans must be repaid so wealth does not increase.

Question 7

When is income realized?

Answer 7

When an arm’s-length transaction changes the form of property.

Question 8

Why require realization before taxation?

Answer 8

Allows measurement of income and taxpayer usually has cash to pay tax.

Question 9

Return of capital principle

Answer 9

Taxpayers are not taxed on recovery of their original investment (basis).

Question 10

Gain formula

Answer 10

Sale proceeds minus basis equals gain or loss.

Question 11

If proceeds exceed basis

Answer 11

Taxable gain occurs.

Question 12

If proceeds are less than basis

Answer 12

A loss occurs.

Question 13

Three items determining timing of income recognition

Answer 13

Accounting method, constructive receipt, claim of right doctrine.

Question 14

Cash method accounting

Answer 14

Income recognized when received; expenses deducted when paid.

Question 15

Accrual method accounting

Answer 15

Income recognized when earned; expenses deducted when incurred.

Question 16

Constructive receipt doctrine

Answer 16

Income is taxed when available without restriction.

Question 17

Claim of right doctrine

Answer 17

Income taxable when received without obligation to repay.

Question 18

Assignment of income doctrine

Answer 18

The person who earns income must pay the tax.

Question 19

Earned income

Answer 19

Income from labor or services such as salary, tips, and bonuses.

Question 20

Unearned income

Answer 20

Income from property such as dividends, rents, or interest.

Question 21

Flow-through income

Answer 21

Entity income taxed directly to owners.

Question 22

Interest income taxability

Answer 22

Taxable unless specifically excluded (e.g., municipal bond interest).

Question 23

Qualified dividends tax rate

Answer 23

Preferential rates of 0%, 15%, or 20%.

Question 24

Rent and royalty income

Answer 24

Taxable income.

Question 25

Gain on sale formula

Answer 25

Amount realized minus basis equals gain or loss.

Question 26

Flow-through entity taxation

Answer 26

Owners taxed on share of income whether cash distributed or not.

Question 27

Alimony tax rule after 2018 divorce

Answer 27

Not deductible and not taxable.

Question 28

Child support tax treatment

Answer 28

Not deductible and not taxable.

Question 29

Property settlements tax treatment

Answer 29

Not deductible and not taxable.

Question 30

Prizes and gambling winnings

Answer 30

Taxable income unless a specific exception applies.

Question 31

Gambling losses deduction

Answer 31

Deductible only up to gambling winnings.

Question 32

Social Security benefits taxation

Answer 32

Partially taxable depending on income level.

Question 33

Unemployment income

Answer 33

Fully taxable income.

Question 34

Imputed income definition

Answer 34

Indirect economic benefits received by taxpayer.

Question 35

Family imputed income treatment

Answer 35

Treated as a gift and not taxable.

Question 36

Employer/employee imputed income

Answer 36

Treated as taxable compensation.

Question 37

Corporation/shareholder imputed income

Answer 37

Treated as taxable dividend income.

Question 38

Employee discount taxation

Answer 38

Taxable only if discount exceeds allowed exclusion limits.

Question 39

Below-market loan definition

Answer 39

Loan charging interest below federal rate creating imputed income.

Question 40

Discharge of indebtedness income

Answer 40

Debt forgiveness treated as taxable income.

Question 41

Debt forgiveness exclusion

Answer 41

If taxpayer remains insolvent, income may be excluded.

Question 42

Exclusions definition

Answer 42

Nonrecognition provisions removing income from taxation.

Question 43

Municipal bond interest

Answer 43

Excluded from gross income.

Question 44

Home sale gain exclusion

Answer 44

$250,000 single or $500,000 married filing jointly exclusion.

Question 45

Home ownership/use requirement

Answer 45

Must own and use home as primary residence for 2 of last 5 years.

Question 46

Employer health insurance premiums

Answer 46

Excluded from employee income.

Question 47

Group-term life insurance exclusion

Answer 47

Premiums up to $50,000 coverage excluded.

Question 48

De minimis benefits

Answer 48

Small fringe benefits excluded from income.

Question 49

Retirement contributions taxation

Answer 49

Excluded currently but taxed later when withdrawn.

Question 50

Accountable plan reimbursements

Answer 50

Excluded if employee provides documentation.

Question 51

Scholarship exclusion rule

Answer 51

Tax-free if used for tuition, fees, and required materials.

Question 52

When scholarships are taxable

Answer 52

If services are required in exchange.

Question 53

Gift taxation to recipient

Answer 53

Gifts are never taxable to recipient.

Question 54

Inheritance taxation

Answer 54

Inheritances are not taxable income.

Question 55

Life insurance proceeds

Answer 55

Excluded if received as lump sum.

Question 56

Foreign earned income exclusion (2025)

Answer 56

Up to $130,000 excluded if qualifications met.

Question 57

Workers’ compensation benefits

Answer 57

Excluded from income.

Question 58

Physical injury settlements

Answer 58

Excluded from income.

Question 59

Punitive damages

Answer 59

Fully taxable income.

Question 60

Medical expense reimbursements

Answer 60

Excluded if reimbursing medical costs.

Question 61

Disability payments exclusion

Answer 61

Tax-free if policy purchased with after-tax money.