Chapter 5 Assignment
1. An exemption reduces your taxable income. Exemptions apply to people and your relationship to them. A tax deduction meanwhile, applies to bills that you pay during the tax year whether standard or itemized.
3. The interest on tax exempt bonds have made people that receive social security be taxed on the benefits lesser of one half of the benefits or one half of the excess of the taxpayer’s provisional income over the base. Also after 1993 any taxpayer with provisional income exceeding the second threshold will be taxed up to 85% of their Social Security benefits.
5. Cash basis taxpayers have the choice of reporting interest income on a yearly basis or reporting all interest income when bonds are finally mature, while accrual basis taxpayers must accrue the increase in the redemption value each year as interest. If taxpayer reports yearly, all bonds owned by them must be similarly treated for all subsequently years. Taxpayers who wait till bonds mature, may change their method of reporting yearly without permission from the IRS. However, in the year of change all interest accrued to date, not previously reported, must be included in gross income.
7. An annuity is a contract that pays a fixed income at set regular intervals for a specific period of time. The amount of income depends upon the premium paid, the life expectancy of the annuitant, and the number of years payments are to be received.
11. Cafeteria plans are employer-sponsored benefit packages that offer employees a choice between taking cash and qualified benefits such as accident or health insurance. A qualified benefit is any benefit that is not included in gross income however cash is a taxable benefit. The employer is allowed a tax deduction for providing the benefits while the employees recognize no income if they choose the nontaxable benefits.
12. A joint and survivor annuity have two individuals that receive periodic payments for life as single life annuities...