...Review List (Exam 2) 10/27/2010 This review list covers important topics for Exam 2 (Annuities, Health Insurance, Chapter 19 to 24, and Special Topic 2). This list should be used only as a reference for exam preparation. All materials that are covered in the lectures and in the related sections of the textbook are testable unless explicitly excluded. Annuities (Chapter 14) 1. What is “annuity”? Why do we need it? An annuity provides periodic payments to an annuitant, which continue for either a fixed period or for the duration of a designated life or lives. The fundamental purpose of a life annuity is to provide lifetime income that cannot be outlived. 2. Understand how annuities work. 3. What are common types of annuities? Understand how fixed annuity and variable annuity work and their differences. Fixed annuity pays periodic income payments that are guaranteed and fixed in amount. It can be purchased so that the income payments start immediately, or the payments can be deferred to some later date. Deferred annuities typically provide for flexible premiums. Variable annuity pays a lifetime income, but the income payments vary depending on investment experience of the subaccount in which the premiums are invested. The purpose of this type of annuity is to provide an inflation hedge by maintaining the purchasing power of the periodic payments. Equity indexed annuity offers the guarantees of a fixed annuity and limited participation in stock market gains. It...
Words: 1691 - Pages: 7
...Rights Reserved. Chapter 5 59 Chapter 5 Gross Income—Exclusions SUMMARY OF CHAPTER Having just completed the study of gross income in the preceding chapter and thus gained a comprehension of what income is and when it is taxable, the student should now be ready to proceed to the concepts underlying exclusions from gross income, which are discussed in the present chapter. Since gross income includes income from all sources, to be excluded from gross income the items must be expressly exempted by law. Sections 101–139 list those items. Common Exclusions from Gross Income ¶5001 Gifts and Inheritances A gift, bequest, or inheritance is excluded from gross income. Thus, the donor does not receive a tax deduction for the property transmitted. If property received by gift or inheritance later produces income, the income is taxable. ¶5015 Life Insurance Proceeds Generally, life insurance proceeds received by the benefi ciary are not included in gross income if such amounts are paid by reason of death of the insured. It is immaterial who the benefi ciary is or whether the policy was part of a group life insurance plan or was individually purchased. However, if payment is delayed and the total amount when received includes interest, the interest is taxable. ¶5025 Sale of Residence Sales of principal residences on May 7, 1997, and thereafter are eligible for a $500,000 exclusion from gross income ($250,000 for single individuals). A two-year ownership and occupancy test and...
Words: 5098 - Pages: 21
...cannot pay or cannot be located, as in the this case, the IRS can pursue the donees for the tax under the doctrine of transferee liability. For individual who are neither residents nor citizens of the United States (i.e. nonresidents a liens, or NRAs), the Federal gift tax appliles only to gifts of property situated within the United States. Exempted, however, are gifts of intangibles, such as stock and bonds. For decedents who are nonresident aliens, the Federal estate tax is imposed on the value of property located within the United States. However, unlike the gift tax, the estate tax applies to stock in U.S. corporations. Mr. Kim's concerns are groundless. Except for property located within the United States, the Federal estate tax does not apply to nonresident aliens. The country in which a person happens to die has no relevance in regard to the application of U.S. transfer taxes. For NRAs, any gifts of properties (other than intangibles) located within the United States will be subject to the federal gift tax. Arturo could avoid any U.S. gift tax by having the children buy the properties in their own names. For decedents who are NRAs, the Federal estate tax is imposed on the value of property located within the United States. Unlike the gift tax, however, the estate tax applies to stock in U.S. corporations. Special reporting procedures apply to the estate taxation of NRAs (see the instructions to Form 706-NA, U.S. Estate (Generation-Skipping Transfer) Tax Return, Estate...
Words: 5136 - Pages: 21
...subsequent earnings on the gift property are subject to tax. Thus, Zane must include the $50 dividend in his taxable income. If the dividend had already been declared when Bob made the gift, Bob would have been taxed on the dividend under the assignment of income doctrine. Under such circumstances, the cash dividend would have been an additional gift. 3. On similar facts, in 1960 the Supreme Court held that the automobile did not constitute a gift, although both parties testified that nothing was owed between the two and that the automobile was meant to be a present. The Court felt that the nature of their past relationship indicated the automobile was either compensation for past customer leads or an inducement to Albert to continue providing such information in the future. 4. Elinor is not taxed on the $6,000 value of the stock received from the inheritance. However, she is taxed on the income received from the stock subsequent to its receipt and must include the $200 dividend in her gross income. 5. Elinor is taxed on the gain from the sale of the stock. Her taxable gain is $2,500 ($8,500-$6,000). Note that the $6,000 fair market value of the stock received from the estate becomes Elinor's basis. Because the value of the inheritance (in this case $6,000) must never be taxed, it is permanently excluded from income. Therefore, under the capital recovery concept, Elinor does not have income unless she receives more than $6,000 for the stock upon disposition. 6. The receipt...
Words: 2750 - Pages: 11
...was equally spent between them on clothing, transportation, and recreation. The remaining $11,000 was invested in tax-exempt securities. Janet Baker paid $1,000 for her mother’s dental work and $1,200 premium on her father’s own life insurance policy. Janet’s father, Calvin, incurred medical expenses that he paid for himself. Darin is the Bakers’ 18-year-old son who is not a student. Darin earned $14,000 from his pool-cleaning business. The cash earned is placed in a savings account. Andrea is the Bakers’ 19-year-old daughter who does not work or go to school. During the year, Andrea purchased a Camaro for $21,000 with her own funds. Morgan is the Bakers’ 23-year-old daughter who obtained a student loan of $20,000 and used the full amount to pay her college tuition at a local university. The Bakers’ fair rental value of their residence, including utilities, is $14,000, while their total food expense for the household is $10,500. Issues Do Calvin and Florence qualify for a dependency exemption as qualifying relatives by meeting the gross income test and the support tests? Are non-taxable funds to be included in determination of support cost of Carters? Did Bakers furnish more than half of the support of Carters? Does $1,200 payment of life insurance premium qualify for inclusion in computation of support? Do Bakers’ children qualify for a dependency exemption as qualifying children by...
Words: 2347 - Pages: 10
... $3,000 $4,800 $5,000 3. (TCO H) Bob and Susan file a joint return for the 2010 tax year. Their adjusted gross income is $80,000. They had a net investment income of $9,000. In 2010, they had the following interest expenses. Personal credit card interest: $5,000 Home mortgage interest: $10,000 Investment interest (on loans used to buy stocks): $10,000 What is the interest deduction for Bob and Susan for the 2010 tax year? (Points : 5) $19,000 $8,000 $16,000 $25,000 4. (TCO B) Bob and Cindy Smith paid the following medical expenses during the year (all in excess of reimbursement). Hospital and doctor bills: $800 Medicine and drugs: $700 Hospitalization insurance premiums: $6,000 Medicine and drugs (for dependent mother, age 71): $1,000 Assuming that the Smiths' adjusted gross income was $60,000, how much of a medical expense deduction may Bob and Cindy claim on their joint return? (Points : 5) $8,170 $4,000 $4,330 $8,500 5. (TCO A) John Baker, a cash-basis, calendar-year taxpayer, paid the following during the year. Social security tax (withheld from wages): $4,500 Real estate taxes: $3,200 State income tax: $3,400 Special assessment for installation of sidewalks: $1,140 Penalty on tax underpayment: $300 Flat fee for automobile...
Words: 2369 - Pages: 10
...of the property to extend of interest at time of death Section A · estate tax is excise tax: “tax included on the property” · Tax base must include the value of the property that most obviously is transferred (FUNCTION OF 2033) · Section 2033 includes (GROSS ESTATE) o Decedent’s securities o Bank deposits o Real state o Income earned before death are collectible by the estate § Rent § Interest § Dividends § Partnership profits § Refunds § Vested rights § Promissory notes (matured or not) § Insurance policies § Saleable (commercial) leasehold interest § Interest in rented property · By either tenants in common or one-half community. § Federal and State bonds are includable despite their exemption from other taxation either by their express terms or by law · REG 20.2033 o Descendant hold only legal title (trustee) under enforceable oral or written does not possess an interest taxable under section 2033. § Ex: agent o ONLY DIRECTLY OWNED PROPERTY · Principal reliance on judicial and administrative interpretation of Sec 2033’s simple language potentially would yield over inclusions “many” o There are not many limits o Limits must be established o Congress explicit responded what property interest that are to be taxed, eventhough they lied beyond the reach of 2033. § 2033- Base line § Section 2041 · in contrast to other specific inclusion provisions in particular with Sect 2041 relating...
Words: 4520 - Pages: 19
...Chapter 9 Taxation: Income and Wealth Classification of Taxes on Income and Wealth: 1. the personal and corporate income taxes; 2. the transfer taxes, namely, the estate and inheritance taxes; 3. the real property tax on realty used for personal purposes; 4. the individual residence tax, both basic and additional; 5. the tax on motor vehicle used for personal purposes; 6. the immigration tax; 7. firearms license fee; 8. hunting permits; and 9. social security contributions, both of private and public employees. Arguments for Taxes on Income and Wealth Taxation is a fiscal tool of government for the achievement of economic, sometimes non-economic, goals. GOALS: 1. maximum freedom for choice, consistent with the welfare of others; 2. optimum standards of living, in terms of available resources and techniques; 3. an optimum rate of economic growth; and 4. distribution of income in conformity with the standards of equity currently accepted by society. Characteristics of Tax System Economic effects. – The tax structure must be established in such a way as to avoid interference with the attainment of the optimum allocation and use of resources and where possible, to assist in the attainment of the optimum. Equity. – The distribution of the tax burden must conform to the pattern of income distribution regarded as the optimum by the consensus in contemporary society. Minimum costs of collection and compliance, consistent with effective enforcement....
Words: 3264 - Pages: 14
...the plan. 2.2.2 Benefits for employees Employees, who are participating in a Section 125 benefit plan, reduces an employee’s taxable salary and increases the amount on their checking account. There they get a higher deduction on dependent care expenses than traditional tax credit offers at the end of year. The impact on employees from increasing insurance is less, like premiums, co-pays or deductibles. The simplest way for an employer to keep cost down, is to lower offered benefit level. This saves money for the employers on their premiums. In opposition to the employees are faced with higher co-pays, deductibles and prescription amounts. With using an FSA, the increased amounts can be covered, because they can set aside money. A cafeteria style benefit plan is therefore a benefit plan, which allows employees to choose benefits on their own, which ones suits best to them and that these benefits are provided by employers and received by employees on a pretax basis. Both can save costs, because they don’t have to pay for...
Words: 1513 - Pages: 7
...PORTFOLIO ALLOCATION Investments in the capital markets offer a unique opportunity to protect and grow personal wealth. Any discussion of investment strategy must begin with the investors risk tolerance. Some of the major factors contributing to any individual’s investments strategies are age, total value of savings and other assets, income, family and health. After a thorough discussion and getting some answers to a series of questions, your tolerance for risk can be assessed. This data helps us formulate investment policy that best fits your needs and objectives. Market timing, security selection and asset allocation are the three tools that are used to help reach your financial goals. ANALYSIS James and Lucy Anderson have an average/moderate tolerance for risk based on the risk tolerance quiz they completed. We have completed a review of the Anderson’s current holdings and assigned them into asset class. Some stocks will be sold and other will be held. Within any given asset class, a benchmark of expected performance has been performed. If the current stocks held in that class are underperforming the class in general, they should be sold and replaced with positions that better represents the asset class. Then purchasing patterns will be changed to add asset in the other classes that are currently not represented in your portfolio. The net result will be a well balance asset allocation that is representative of moderate risk tolerance. James and...
Words: 4889 - Pages: 20
...different amounts of income pay different amounts of tax. 16th amendment-the congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. Statute of Limitations- federal 3 years regular, 6 years-omit>25% of gross income, none-fraud. State may be different, Michigan regular is 4. FICA(federal insurance contributions act)-social security tax -social security 6.2% 2010 4.2% 2011. Base amount is 106,800 -medicare 1.45% FUTA(federal unemployment tax act) 6.2% on first $7,000 of wages Chapter 3 Basic Tax Structure -Economic income (+)only place where u add stuff when determining GI -Gross Income -Adjusted Gross Income (-) -Taxable Income (-) -Tax (-) -Tax Due (-) Tax Formula for Individuals Income Less:exclusions GI Less:deductions for AGI Adjusted Gross Income Less: the greater of Total itemized deductions Or standard deduction Less: personal and dependency exemptions Taxable income Tax on taxable income Less:tax credits Tax due (or refund) *economic income---- exclusions *gross income—deductions for AGI AGI -itemized deductions or standard deduction *itemized deductions are related to production or collection of income and management of property held for the production of income. *Standard deduction: 2010 2011 single 5700 5800 married,filing j 11400 11600 surviving spouse 11400 11600 head of...
Words: 2469 - Pages: 10
...5 Interests Arising at Death 5 “Property” versus “Expectancy” 6 Bank Deposits, Checks, and Notes 6 Right to Accrued Payments 7 The Scope of the Gift Tax: §§ 2501 and 2511 7 Is There a “Transfer” of “Property?” 7 Interest-Free Loans and Rent-Free Use of Other Assets 8 When is the Transfer “Completed?” 8 Transferred Interest Incapable of Valuation 9 Indirect Transfers 10 What is a “Gift”? 10 Donative Intent and “Adequate and Full Consideration” 10 Transfers of Property in Satisfaction of Marital Rights 11 Dower and Curtesy Interests in the Gross Estate 11 Marital Rights as Consideration 11 Transfers Incident to Separation and Divorce 12 Transfers with Retained Powers and Rights 13 Transfers with Retained Life Estates: § 2036 13 Reciprocal Trusts 14 Retention of Right to Income from Property: § 2036(a)(1) 14 Retention of Possession or Enjoyment of the Property: §§ 2036(a)(1) and 2036(b) 14 Retention of Power to Designate Who Shall Possess or Enjoy the Property: § 2036(a)(2) 16 Transfers with Retained Powers to Alter, Amend, Revoke or Terminate: § 2038 17 Differences Between § 2036(a)(2) and § 2038 19 Transfers with Retained Reversionary Interests: § 2037 19 The “Adequate and Full Consideration” Exception for §§ 2036- 2038 20 Gift Tax on Transfers with Retained Interests or Powers 20 Transfers with Retained Interests 21 Annuities and...
Words: 31030 - Pages: 125
...S O LU T I O N TO C O R P O R AT I O N P R AC T I C E S E T No More Ice, Inc. 1 3 4 5 6 7 No More Ice, Inc. E. I. No. 98-7654321 A Schedule Attached to and Made Part of 2012 Form 1120—U.S. Corporation Income Tax Return List of Attached Schedules Schedule O—Consent Plan and Apportionment Schedule Form 1125-A—Cost of Goods Sold Forms 8949—Sales and Other Dispositions of Capital Assets Form 4626—Alternative Minimum Tax—Corporations Schedule D—Capital Gains and Losses Schedule G (Form 1120)—Information on Certain Persons Owning the Corporation’s Voting Stock Form 1125-E—Compensation of Officers Attachment—Supporting Details 9 11 12 13 14 15 16 17 18 19 20 21 INFORMATION FOR INSTRUCTORS CORPORATION PRACTICE SET (2013-2014 EDITION) No More Ice, Inc. Following are details on some of the calculations in the solution. Observations are made on areas which the students may find more difficult. You can reduce the difficulty of the practice set if you so choose by providing your students “clues” (or even the solutions) in some or all of these areas. Paragraph references are to the facts for the practice set. 1. Computation of Cost of Goods Sold (Form 1125-A). Amounts for beginning and ending inventories and for cost of goods sold are provided. Students must “back into” the cost of purchases; e.g., Cost of Goods Sold ........................................................................... Inventory Adjustment...
Words: 7123 - Pages: 29
...LO3 What type of ownership interest is appropriate in each of the following. a. A father desires to provide for his daughter during her life but wants to ensure that her younger husband (i.e., the son-in-law) does not inherit the property if he survives her. Tenants in common b. A married couple buys a home and wants to make sure that whoever survives obtains sole ownership of the property. Community property c. Grandparents want to make an outright gift of undeveloped land to adult children to be held as undivided co-owners. Joint tenants 13) LO4 Addison provides all of the support of her dependent father, Walter, who lives with her. Because Walter is very proud and wants to appear independent, Addison gives him the money to pay his medical bills. Is Addison subject to the Federal gift tax as a result of these transfers? Explain. No, the Federal gift tax does not apply to tuition payments made to an educational organization on another's behalf. Nor does it apply to amounts paid on another's behalf for medical care. 18) LO5 Regarding the gift-splitting provision of sect 2513, comment on the following. a. What it was designed to accomplish. a gift made by a person to someone other than his or her spouse may be considered, for Federal gift tax purposes, as having been made one-half by each spouse. b. The treatment of any taxable gifts previously made by the nonowner spouse. c. How the election is made to split gifts is not necessary when husband and wife transfer...
Words: 2181 - Pages: 9
...over time. Be able to explain what factors are responsible for this increase. Why does the percentage of your salary devoted to employee benefits matter to you? What are some of the public policy issues related to employee benefits, and what are the implications? What are some of the likely future trends in employee benefits that we discussed in class? Chapter 2: Employee Benefit Management and Planning What are some of the employer objectives when designing a benefit plan? How specific are these stated goals, and how easy are they to measure? How do employers determine who should receive benefits, and how do they decide what types of benefits to offer? What are the advantages and disadvantages of a market research approach? What are the advantages and disadvantages of using top management’s perception to design an employee benefit plan? What is the life-cycle approach’s main recognition? What is the work-life approach’s main recognition? What are some of the methods used by employers to control costs? How could self-funding control costs? What methods do employers use to communicate employee benefits information to employees? What factors influence the outsourcing of employee benefits? What is meant by outsourcing serving as a “buffer” function? Chapter 3: Social Security and Medicare Why does social insurance exist? What are some of the characteristics of social insurance? What benefits are included in the Social Security program? (OASDI) What are the...
Words: 761 - Pages: 4
