[REG] 1040 Gross income inclusion & exclusion

1. Entities in Tax Law

Taxable Entity	Non taxable Entity
Individuals C corporation Fiduciary(Trust, Estate)	Partnership S Corporation Sole proprietorship(self-employed income)

 

 

2. Types of taxes

Income tax	Transfer tax	Employment tax	State/Local gov tax
Federal income tax State/local income tax Foreign income tax	Federal gift and estate tax State gift and estate tax	Social security tax Federal/state unemployment tax	Real and personal property tax Sales tax

 

 

Gross income inclusion and exclusion

1. Cash/Property received for services rendered, including

    Cash + FMV of property received

 

2. Employee benefits, excluded, Paid by ER

 1) Nontaxable employee fringe benefits

Health	- group life insurance premium up to $50,000 - Accident/health insurance premium - reimbursement for medical care - ER's contribution to EE's Archer medical savings account - Worker's compensation(산재보험, 회사가냄)
Education /Dependent care	- Educational assistance up to $5,250/Y, undergraduate/graduate courses - Dependent care assistance up to $5,000(child under 13, other dependent incapable of self-care) - Adoption expenses up to $15,950
Qualified EE discount	- Merchandise Discounts(non taxable up to gross profit) - Service Discount(FMV*20%) - Employer-Provided Parking($300/m+taxable cash compensation) - Transit Passes($300/m) * No additional cost benefits(standby tickets, vacant hotel room..)
Meals&Lodging &Mic	- Working condition fringe(co car only the biz use portion) - minimis fringe(coffee, holiday gift, flowers)
Flexible Spending Arrangements (FSAs) - EE elects to have part of their salary deposited pretax into a flexible spending account designated for them(up to 3,050) - qualified health care/qualified dependent care costs, and submits claims for reimbursement - Must be done via salary reduction directly by the employer, and the employee is not taxed on that income

 

3. Life insurance

1) Life insurance proceeds(face amount), excluded

- any amount received over the pro rata portion(interest) is taxable

- Life insurance for consideration, (consideration: excluded, any excess: included)

 

2) Life insurance premiums

paid by EE, non-deductible

paid by ER on behalf of EE

	Personal life insurance	ER paid life insurance(group life insurance)
		Beneficiary: EE's heir	Beneficiary: ER
Life insurance proceeds	non-taxable income	non-taxable	non-taxable
Life insurance premium	nondeductible expense	ER deductible expense EE premiums of more than 50K taxable	ER nondeductible EE nontaxable

 

4. Stock option

	Incentive stock option	Non-qualified stock option
Grant date	not income 2yrs from Grant date	ER deductible EE Salary income, on grant/exercise date for        over exercise price
Exercise date	not income 1yrs from the Exercise date
Sales date	Long-term capital gain/loss for  over exercise price	Capital gain/loss for  over FMV on the date of grant/exercise
	* Excercise price > MKT price, grant date	* holding requirement not met
grant 100 exercise 180 sell 230	Long term capital gain 130(230-100)	ER deductible 80 EE salary income 80(180-100)       capital gain 50(230-180)

 

 

5. Interest income(received or accrued)

1) Bank deposit interest, taxable

2) Tax refund interest, taxable

3) Loan interest receivable

4) Bond interest

Government Bond	federal, taxable.  state/local, nontaxable
US savings bonds(series EE)	- the purchaser of the bonds must be the sole owner of the bond(joint owner with spouse) - issue to an individual who is at least 24 at the bond issue date - Bond redemption     > Interest nontaxable, used for higher education expense    > Nontaxable interest prorated is partly used for education    > phase-out AGI MFJ137.8K-167.8K / Single 91,850-106.850
Corporate bonds	- Interest taxable - Premium    Amortization allowed    premium amortization, offsets(reduce) interest income

 

 

6. Dividend income

1) Report dividend income upon collection

	Declared PY	Received CY
GAAP	Div received / Div Rev	Cash / Div Received
Tax	X	Cash / Div Received

 

2) Amount of Divi income

Cash
Property: FMV
Stock dividend	Nontaxable stock divi	CS divi on CS SH (바뀌지 않게) PS divi on CS (Not convertible P.S -> C.S)
	taxable stock divi	CS / PS on PS (convertible P.S -> C.S) PS divi on CS SH (convertible P.S -> C.S) Option for cash, property, stock

* not taxable:

    - dividend received from life insurance policies, cumulative divi<cumulative premium >

    - Return of capital(no E&P, reduce basis)

    - Stock split

 

3) Qualified dividend tax rate (15%), LTCG

Divi paid by US corp + held for more than 60 days/120days, beginning 60 days before the ex-dividend date

		MFJ	Single
10%, 12% tax bracket	0%	$0 - $89,250	$0 - $44,625
~	15%	$89,251 - $553,850	$44,626 - $492,300
35% 37% tax bracket	20%	over $553,850	over $492,300

 

4) Nonqualified Dividends

- Employer stock held by an employee stock ownership plan(ESOP)

- Amounts taken into account as investment income(limitation on investment expense)

- Dividends paid by credit unions, mutual savings banks, building and loan associations, mutual insurance companies, farmer's cooperatives

 

7. IRA Distributions

	Traditional IRA	Traditional IRA (non-deductible)	Roth IRA
Contribution	6K		6K
Deductibility	6K	nondeductible	nondeductible
Phase-out for MFJ NP spouses
Distribution	Taxable ordinary income	Principal: tax-free Int: taxable ordinary income * pro rata based on relative amt	nontaxable
Earnings	Taxable ordinary income	Int: taxable ordinary income	nontaxable
	Qualified distribution - age over 59 1/2		Qualified distribution - age over 59 1/2 - 5 yrs test

- taxpayers are required to start taking required minimum distributions by 4/1 when the taxpayer reaches age 73

- penalty tax(10 percent)

* not subject to penalty: First time homebuyer($10K), Insurance, Medical exp, Disability, Education, Adoption($5K), Disaster($22K), Death of terminal illness

 

 

8. Pensions and annuities

- Return of investment(contributions): nontaxable + Earnings: ordinary income

 

9. Social Security benefit

1) Social security tax(15.3%)

   FICA, Regular EE Salary (EE 50%, ER 50%)

   Self Employment income

 

2) Social Security benefit

	Low income, 0%	Middle income, 50%	Upper income
Single	$25K	50%	$34K
MFJ	$32K	50%	$44K

 

3) Modified Adjusted Gross Income(MAGI)

   Adoption exclusion, EE bond Income, IRA(traditional) contribution, Out of us income, University student loan

 

10. Additional income and adjustments to income(Sch 1)

1) Taxable refunds of state and local income tax

if PY Itemized deduct, refund + int > taxable

            standard deduct, int > taxable

 

2). Divorce(12/31/2018)

After 2018.12.31: Alimony / Property Settlement: no tax effect

Before 2018.12.31: Alimony: Recipient, taxable + Payer, Deductible Child support: non-taxable, non-deductable  Requirement - written in divorce agreement - pay in cash only / pay on behalf of the recipient - terminated upon the death of the recipient

 

3) Rental Income

     Net amount = Rental income -Total rental apartment exp

 

4) Unemployment compensation, taxable

  Payroll tax FUTA/SUTA unemployment tax 회사가 낸다

 - deductible by the ER as a bis expense for federal income tax purposes

 - quarterly payroll of over $1500, first 7K of a covered EE's wage 

                 

 

5) Other Income (1040 sche1, line8)

  1) Gambling winning (1040 sche1, line8b)

      $1000이상, 10% WH 미국인, 30%WH 외국인

  2) Cancellation of debt(debt forgiveness income) (1040 sche1, line8c)

  3) Foreign earned income exclusion (1040 sche1, line8d)

      up to $107,600 of foreign-earned income(1040 line1) + housing costs are excluded

  4) Fees received for jury service, taxable (1040 sche1, line8)

  5) Prize and awards, taxable(1040 sche1, line8h)

    *exception: the winner is selected for the award without entering into a contest (no action on the individual's part)

                        + the award directly to a governmental unit or charitable organization> nontaxable)

  6) Income from hobby activity (1040 sche1, line8i)

      a hobby is an activity not engaged in for profit(personal activity)

      income from hobby > other income

      expenses from hobby > nondeductible

  7) Fees received by executor/administrator, earned by non-professionals > taxable as other income

 

12. Others excluded from gross income, nontaxable

  1) scholarship and fellowship

      degree candidate + must be used for tuition/books/supplies + not RA or TA pay

  2) Reimbursement for personal accident/health insurance

  3) Payment received for personal injury / physical sickness

	compensation	personal injury	not personal injury
Civil court	medical expense	nontaxable	nontaxable
	lost earnings	nontaxable	taxable
	physical damage	nontaxable	-
Criminal court	emotional distress	nontaxable	taxable
	punitive damage	taxable	taxable

 

  4) Gifts received,  5) Inheritances, excluded

	Giver	Receiver
Gift	Donor, gift tax	Donee, not taxable
Estate/Inheritance	Decedent, estate tax	Heir/Beneficiary, not taxable

  

5) Political contribution received

 

6) Foreign-Earned Income Exclusion

   - may exclude up to $120K of their foreign-earned income

   - Qualify test: ①Bona Fide Residence test: resident ②Physical presence test: 330days/12M

   - exclusion cannot exceed: foreign income - foreign housing