Gross Income Exclusions – ch 5(§§101-150)(1) Gifts + Inheritances  voluntary transfer of property without consideration  be wary of gifts in business setting  employer gifts to employees generally taxable unless specifically excludedemployer death benefits voluntary pymts by employer to spouse N/T pymts of accrued salary are taxable(2) Life Insurance Proceeds amt paid to beneficiary upon death N/Taccelerated death benefitstaxable = csv – premiums paid on policyexclusions = terminally ill or chronically illavailable to uninsured for long term caretransfers of ins. policy = proceeds – premiumsunless transfer between partners/ partnership or corporation(3) Scholarships- not taxable unless compensation for services and recipient must be candidate for degree at an educational institution- exclude costs of tuition, fees, books, supplies, or equipment required for courses- room + board is not excluded = earned income for purposes of std.deduction- if scholarships are paid only for children of key employees discriminatory + taxable- qualified tuition reduction plan  Drexel employees exclude tuition waivers from gross income  applies to employees, spouse+ childrengenerally limited to undergrad. Tuition but may apply to research asst + teaching asst.(4) Comp. For Injuries + Sickness (See summary 5-1 p. 5-11) (A) Damages: recovery of (1) loss of income – taxable(2) expenses incurred – N/T unless deducted(3) property destroyed – amt received = proceeds(4) personal injuryPersonal Injury:(a) Compensatory damages  compensate for damage taxable unless rec’d on account of physical personal injury or physical sickness  does not include emotional distress(b) Punitive damages punishment for outrageous conduct  included in income(B) Workers’ Comp.  for job related injures  specifically exempted § 104(a) (1)( C ) Accident + Health Insurance Benefitseg. Disability Ins.If plan purchased by: taxpayer  pymts received are excluded(5) Employer Sponsored Accident + Health- For accident + health, disability premiums paid by employer are excludedfrom income- Health Savings Accounts (HSAs) : employer purchases a medical insurance plan with a high deductible and makes contributions (up to max.contrib. of 100% of deductible amount) to an employee’s HSA. The monthly deductible is limited to lesser of 1/12 of annual deductible or $2,250 for self-only coverage or $4,500 for family coverage. Employee may take funds out of the HSA tax-free to extent for medical expenses. - L/T care plans premiums paid are deducted by employer + exclude from income by employee- Limited to greater of $230 for each day the patient receives care or the total actual cost of care.- § 105(a) generally includes in income collections on insurance benefits exceptions (1) pymt received for medical care of employee, spouse + dependents(2) permanent loss or loss of use of a member of function of body part orpermanent disfigurement exclusion not available if L/T careens. Is provided as part ofa cafeteria plan or flexible spending plan(3) Working Condition Fringes- cost of property or services provided by employer excludedif deductible for employeeeg. Dues to AICPA discriminatory fringes still qualify (4) De Minimis Fringes– so small that reporting is impractical – use of company copy machine, taxi fare or dinner because of overtime work, holiday gift (can be discrimin.)– subsidized eating facility excluded if on or near business premises ( cannot be discrimin.)(5) Qualified Transp. Fringes- encourage mass transitFor a) transp. On a commuter highway vehicle combined(at least 7 people) use = 80% commuting limit = $100/monthb) transit passc) qualified parking ( up to $195/mo)- parking on or near business premises- parking on or near commuting location(6) Qualified Moving Expense Reimbursement Excluded if paid by employer qualified  it would be deductible under §217 (Discussed in Ch8)(6) Meals + Lodging§119 excludes meals + lodging provided to employee, spouse + dependents if:(1) Furnished by employer on employer’s business premises + for convenience of employer(2) For lodging – employee is required to accept lodging as a condition of employment eg. Arthur Andersen training facility; lunches provided to stockbrokers if employee has option of cash or lodging then taxable military personnel, ministers are allowed housing exclusions housing excl. for employees of educational facility if annual rent ≥ 5% appraised fmv of facility(7) Other Employee Fringe Benefits(A) Specific BenefitsCongress encourages the following:(1) child/ dependent care facilities paid by employers exclusion up to $5,000 per year but cannot exceed earned income(2) provide use of athletic facilities by employees, spouse + dep. Facilities must be on employer’s premises(3) provide educational assistance – tuition, fees, books + supplies excluded for undergraduate students up to $5,250(4) pay/ reimburse child adoption expenses exclude up to $10,390 or $10,390 for child with special needs(8) Foreign Earned Income- U.S. citizen taxed in U.S. + where located in foreign country- so there is double tax elect to either(1) include foreign income + claim FTC(2) exclude foreign earnings = earnings from personal services in foreign countryexclusion available if (1) boner fide resident outside U.S.(2) present in foreign country for at least 330 days during any 12 consecutive monthsexclusion limited to $80,000 in 2004 (also exclude reasonable housing costs)(9) Interest on State + Local Governmental Bonds- excluded- does not include condemnation awards, overpayment of state tax or sale of tax exemp + bonds  there are all taxable(10) Dividends generally taxable Distrib from (1) E+P – dividend(2) cap stock – nontaxable ROC(3) cap gain distribStock dividends  shareholder receive additional; shares pro-rate not taxable unless shareholder has option of receiving cash or stock(11) Educational Saving Bonds interest on Series EE U.S. gov + saving bonds excluded if bond proceeds are used to pay qualified higher education expenses + bonds are issued after 12/31/89 and to individual at least 24 yrs oldNo exclusion if MAGI > threshold see 5-30,31(12) Qualified State Tuition Programs parents prepay college tuition for future years amt included in student’s income = amt used to pay tuition – amt contributed if child doesn’t go to college then