Chapter 4 Question #1What is a qualified dividend? How is it taxed? * Adividend is a payment from a C-Corporation to the owner, usually in cash. This is taxableincome to the recipient.¢ Aqualified dividend is a dividend that qualifies for a preferential tax rate (usually 15%).* Qualified Dividend requirements include:© 60 day holding periodo C-Corp must either be (1) a U.5. based C-Corp, or (2) the stock is traded on a U.S. basedstock exchange (e.g., NYSE, NASDAQ). Question #2Community Property vs non-community property (Common Law). What are they, and how does it affecttaxes? ¢ Community Property affects many areas of law, and a few areas of tax law* |t can affect Gift and Estate taxes, and if a taxpayer files MFS it affects how they allocateincome/deductions between the two married taxpayers.o Community Property = income/deductions are split 50/50o Common Law - each taxpayer picks up their respective income/deductions Question #3Provisional Income = How to calculate? What is it used for? * Provisional income is used to determine the taxation of Social Security Benefits (SSB). It is thenumber used to compare to the thresholds. ® Itis calculated as MAGI + 50% of SSB ® MAGI =AGI (excluding SSB) + foreign earned income exclusion + tax exempt interest Question #4Explain the taxation of Social Security Benefits (SSB) * Compare provisional income to the two thresholds. If below the lower threshold, SSB are included at 0%. If above the higher threshold, SSB are included at 85%. If between the two thresholds, you'd have to use the two equations. It will result in an inclusionpercent between 0% and 85%. | won't ask you to calculate this on the exam. Q1) Smith and Goode were divorced in 2016. Smith, an individual, is required to pay Goode yearlyalimony of $6,000 and yearly child support of $18,000. Smith paid Goode $20,000 in 2023. Smith's 2023W-2 income was $50,000. Considering only the foregoing facts, what should Smith's adjusted grossincome be for 2023? Total paid was $20,000. This is allocated first to child support, and then to alimony.18,000 child support2,000 alimony20,000 Total paid by Smith to Goode50,000 Wage (2.000) Alimony48,000 AGI Q2) Walters, an individual, received the following in 2023: W-2 income $10,000Federal tax refund for 2022 1,250Scholarship stipend, in return for teaching assistant duties 25,000Cash inheritance from deceased great-uncle 5,000 Considering only the above, what is Walters 2023 Gross Income? W-2 Taxable Federal Refund Not Taxable, although State tax refunds may be taxable.Scholarship Taxable, since it was earned in exchange for servicesInheritance Not taxable AGI = $35,000 Chapter 4 Prob Q51) Pam retires after 28 years of service with her employer. She is 66 years old, has contributed $42,000 to her employer's qualified pension fund. She elects to receive her retirementbenefits as an annuity of $3,000 per month for the remainder of her life. a) b) Assume that pam retires in June 2022 and collects six annuity payments this year. What isher gross income from the annuity payments in the first year? Employee's Investment = $42,000Anticipated payments =210 (see Exhibit 4.2) Exclusion per payment = $42,000 / 210 = $200 per payment Collections in 2020 (6*$3,000) 18,000Exclusion for capital recovery (6*200) 1.200!Include in gross income 16,800 Assume that pam lives 25 years after retiring. What is her gross income from the annuitypayments in the twenty-fourth year? Pam will have recovered her investment as a return of capital prior to the twenty-fourthyear. Thus, all annuity payments received in the twenty-fourth year are includable in hergross income 12 * $3,000 = £36,000 Assume that Pam dies after collecting 160 payments. She collected eight payments in theyear of her death. What are Pam's gross income and deductions from the annuity contractin the year of her death? Investment in the Contract $42,000Less: capital recovered so far ($200 * 160) (32,000Unrecovered cost (loss in the final year return) $10,000 Income from collections in final year Collected (8 * $3,000) $24,000Exclusion amount (8 * $200) 1.600]Include in gross income 22,400 Income of $22,400 and deductible loss of $10,000 Q65) As a general rule 1. Income from property is taxed to the person who owns the property. 1. Income from services is taxed to the person who eams the income. I11. The assignee of income from property must pay tax on the income. IV. The person who receives the benefit of the income must pay the tax on the income. Only III and 1V are true.I, IL, IIL, and IV are true.1, 1L, and III are true, but IV is falseOnly I and II are true. an oo This question is about the fruit and tree metaphor. It is the person who earns the meney that pays taxonit. If that person assigns income to someone else, they (the assignor) are still taxed on that income,and the assignee (the person receiving the money) is not taxed on it. Instead, it is taxed to the earner(assignor) and is considered a gift to the assignee. If | perform a service, but ask that my payment bemade to my grandmother, I'm still taxed on it. Not my grandmother