Gross Income Overview and Tax Rules

Vocabulary flashcards covering key gross income topics, inclusions, exclusions, fringe benefits, IRAs, annuities, and tax accounting rules based on Becker review material.

Gross Income

All income from whatever source derived, unless specifically excluded by tax law.

Realization

The requirement that there be an accrual or receipt of cash, property, or services, or a change in the form or nature of an investment (a sale or exchange).

Recognition

The inclusion of a realized gain on the tax return because it cannot be excluded or deferred under tax law.

Cash Method of Revenue Recognition

An accounting method where recognition occurs in the period revenue is actually or constructively received in cash or at the fair market value ($FMV$) of property.

Accrual Method of Revenue Recognition

An accounting method where revenue recognition occurs according to the rules of GAAP (with some exceptions) and revenue is taxable when earned.

Bargain Purchase

An arrangement where an employer sells property to an employee for less than its fair market value, making the difference taxable income to the employee.

Guaranteed Payments to a Partner

Reasonable compensation paid to a partner for services rendered or use of capital without regard to the partner's income or loss sharing percentage, which is subject to self-employment tax.

Group Term Life Insurance Coverage Limit

Employer-paid premiums on group term life insurance are excludable from an employee's gross income up to the cost of the first $\\text{1}50,000$ of coverage per employee.

De Minimis Fringe Benefits

Benefits provided to an employee that are so minimal in value that accounting for them is impractical, allowing their value to be excluded from gross income.

Employer Educational Assistance Exclusion

An exclusion from gross income of up to $\\text{1}5,250$ per year for employer payments made on behalf of an employee's educational expenses or student loans.

Flexible Spending Arrangement (FSA)

A benefit plan allowing employees to deposit up to $\\text{1}3,400$ (for 2026) pretax via salary reduction to pay for qualified health or dependent care costs, with an optional carryover limit of up to $\\text{1}680$.

U.S. Series EE Savings Bonds Interest Exclusion

Tax-exempt interest on post-1989 Series EE bonds used for higher education of the taxpayer, spouse, or dependents, provided specific age, filing status, and MAGI criteria are met.

Forfeited Interest

A penalty for early withdrawal of savings that is credited and reported as taxable interest income but allowed as a separate deduction/adjustment in the year incurred.

Dividend Income

A distribution of property by a C corporation to its shareholders out of current or accumulated earnings and profits ($E\&P$).

Qualified Dividends

Dividends paid by domestic or qualified foreign corporations taxed at preferential long-term capital gain rates if held for more than $60$ days during the $120$-day period starting $60$ days before the ex-dividend date.

Return of Capital

A distribution by a corporation without earnings and profits ($E\&P$) that is nontaxable and reduces the taxpayer's basis in common stock held (not below zero).

Traditional Deductible IRA Distribution

A retirement distribution where contributions were deducted at the time of deposit, making both the principal and earnings $100\%$ taxable as ordinary income.

Qualified Roth IRA Distribution

A distribution made at least $5$ years after the first contribution year and made after age $59\frac{1}{2}$, due to disability, after death, or for first-time homebuyer expenses (up to $\\text{1}10,000$), which is fully nontaxable.

Trump Account

A tax-deferred investment account for children under age $18$ with a valid Social Security number, treated as a traditional IRA with restrictions on distributions prior to the beneficiary turning age $18$.

Fixed Period Annuity Exclusion Ratio

The portion of each annuity payment that represents a nontaxable return of investment, calculated as the original investment divided by the expected value of the annuity.

Alimony (Post-2018 Agreements)

Spousal support payments under divorce or separation agreements executed after December 31, 2018, which are neither taxable to the recipient nor deductible by the payor.

Child Support Payments

Fixed payments under a divorce decree for the support of minor children, which are nontaxable to the recipient and non-deductible by the payor.

Cancellation of Debt (COD) Income

Gross income generated when a lender cancels or forgives part or all of a debt, unless a specific statutory exception (e.g., bankruptcy, insolvency, death/disability) applies.

Bona Fide Residence Test

A rule for the foreign-earned income exclusion requiring the taxpayer to establish bona fide residence in a foreign country for an entire taxable year.

Physical Presence Test

A rule for the foreign-earned income exclusion requiring the taxpayer to be physically present in a foreign country for at least $330$ full days during any $12$-consecutive-month period.

Foreign-Earned Income Exclusion

A tax exclusion allowing individuals working abroad who meet qualifying tests to exclude up to $\\text{1}132,900$ (for 2026) of foreign-earned income from gross income.