Gross Income exclusions: Gifts, inheritance, employee death benefits
4 important questions on Gross Income exclusions: Gifts, inheritance, employee death benefits
- Case 4: After a federally recognized event caused damage to his community, Marcus's employer reimbursed him $8,700 for temporary housing and damage to his personal property. Assume the payment satisfies the lesson's requirements for exclusion of qualifying disaster-related assistance.
- Determine the amount included in the recipient's gross income and select the correct tax treatment.
Tax treatment: Qualified disaster payment exclusion
- Case 5: Nora's deceased spouse's employer first paid Nora $9,600 of salary the spouse had already earned. The employer then paid Nora $14,000 of support under a board resolution and general policy. The employer received no advantage, Nora performed no services, and the spouse had been fully compensated after the salary payment.
- Determine the amount included in the recipient's gross income and select the correct tax treatment.
9,600
Tax treatment: Earned Death benefit taxable; gratuitous support excluded
How is a gross income exclusion different from a deduction?
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Melissa promised Carl, her cousin, that she would leave him her farm as an inheritance if Carl took care of it while Melissa was away. Carl fulfilled this agreement and when Melissa passed away, Carl inherited the farm. This inheritance is tax-free and not considered part of Carl’s gross income.
Therefore, the fair market value of the farm should be included in Carl’s gross income and he has to pay income tax on it.
- Gifts given by employers to their employees typically cannot be exempted from taxes unless special circumstances like achievement awards
- A gift should have no strings attached. Person gifting should have no expectation of getting something in return.
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