Gross Income - Specific Items of Income and Exclusions

6 important questions on Gross Income - Specific Items of Income and Exclusions

What does each annuity payment received by the taxpayer consist of?

Each annuity payment received by the taxpayer consists of return of investment, which are nontaxable, and earnings, which are taxed as ordinary income.

How do you calculate the nontaxable portion of an annuity payment?

Scale the payment by the annuity exclusion ratio = Original investment / Total annuity payments

What are the tax implications for alimony payments made pursuant to divorce or separation agreements executed on or before December 31, 2018?

Alimony made pursuant to a divorce executed on or before December 31, 2018, are included in gross income by the recipient and deductible by the payor spouse.
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What are the requirements for payments to be deemed alimony under tax law?

To be deemed alimony under the tax law:
  • payments must be legally required pursuant to a written divorce agreement
  • payments must be in cash or its equivalent
  • payments cannot extend beyond the death of the payee-spouse
  • payments cannot be made to members of the same household
  • payments must not be designated as anything other than alimony
  • the spouses may not file a joint tax return.

For a sole proprietorship, where is business income or loss calculated, what amount flows to Form 1040?

It is calculated on Schedule C. The single net amount, not gross revenue, flows to Form 1040.

What are the conditions under which scholarships and fellowship grants are excludable for degree-seeking students?

Scholarships and fellowship grants are excludable only up to amounts actually spent on tuition, fees, books, and supplies (not room-and-board) provided:
  • The grant is made to a degree-seeking student;
  • No services are to be performed as a condition to receiving the grant; and
  • The grant is not made in consideration for past, present, or future services of the grantee.

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