Hello, and welcome to the session in which we will discuss gross income Exclusion and we're gonna look at several topics that deals with Exclusion from gross income because in the absence of any specific information all income is included included means taxable Unless specifically executed executed means it's not taxable So there are certain items that that are not taxable and we need to discuss the rules for those Simply put gross income exclusion is when you receive cash and that cash is not included in gross income Therefore not Taxable so we need to know what are those items? Okay. Now bear in mind execution is different than deductions Deductions is when you make a cash payment or a non-cash expense. Basically, you can deduct something That's gonna reduce your gross income. This is not what we are discussing. We are not discussing deductions We are discussing when the cash itself not included in gross income and specifically in this session I'm gonna be focusing on two topics, which are gifts and Inheritances before we proceed any further. I have a public announcement about my company farhat lectures comm Farhat accounting lectures is a supplemental educational tool That's gonna help you with your CPA exam preparation as well as your accounting courses My CPA material is aligned with your CPA review course such as Becker Roger Wiley gleam miles my accounting courses are aligned with your accounting courses broken down by chapter and topics my resources consists of Lectures multiple choice questions true false questions as well as exercises. Go ahead start your free trial today Starting with gift. What is a gift? gift is the act of giving property or cash without any Expectation of getting anything in return. So it's not an equal exchange You're giving something and maybe because you like the person out of affection and You don't expect anything in return. That's the definition of a gift. So it's done voluntarily out of sentiments like affection respect admiration charity or with the intent to with the intent to donate Do not impose a tax obligation on the recipient. So if you gave me a gift I don't have if I'm the receiver of the gift Let's assume you have a rich aunt or a rich uncle and they gave you a gift You are not responsible for that to paying taxes on that gift. So the gift to you is tax free Now, how about your rich uncle or rich aunt? Well, that's the topic or for a different Session They're called the donor the donor. They all have different rules. Well, which we'll talk about them in a different session How about inheritance? What is an inheritance? That's a gift. The only difference It's at the gift from a person that already died. So a gift is a from a person. That's a life Inheritance is the person passed away in terms of taxation if you are receiving this money beneficiaries like if you are the person that's receiving the money from your rich Grandma or grandpa, they passed away and left you some money You don't need to pay taxes on what you inherit and again, we'll talk about that topic later on How about your grandma and grandpa? That's a different story. Now bear in mind any income generated from those assets or gift Let's assume they gave you a bond or a stock and the bond pays interests That's separate from the bond once you receive that interest You'll have to pay taxes or if they give you a stock the stock pays dividend. Well, guess what? We receive a dividend from the stock when you receive the stock that was not taxed But the dividend is taxed. So if a father gifts his daughter a corporate bond the daughter won't be Taxed on the gift itself, which is the corporate bond itself However, any interest generated from that bond will be taxable just it's a regular income Now you own the bond it's regular income How about if there is a quote gift or any sort of transfer from employers to employees or basically gifts Transfer what I mean by here giving you something. Well, the first thing you need to know There's no gifts between employers and employee. There's no affection. There's no Relationship between you and your employer. The only relationship is a compensation relationship You work for the employer and they gave you money No gift. Okay. Now gift given by their employees by the by their employers their employees typically cannot be exempt from taxes that's there's always, you know an exception, but typically they're not because You know, you are working there you are not Doing them a favor or they're not doing a favor. There are certain exceptions Certain exceptions under certain condition if the employee there's an achievement award If there is an achievement award under certain circumstances that might be executed also, if you experience a disaster and a qualified disaster area, let's assume You live in an area and there's a hurricane or an earthquake an Extraordinary situation where these rules change If it's a disaster, why? Because for a disaster The employer was not planning to give you anything. So when that disaster happened, they're trying to help you out When they're trying to help you out, it's not planned Therefore, they're really trying to help you out get out of this situation. There are special circumstances So if an employer Compensate their employees for living costs funeral expenses or property damage incurred during a disaster this payment may be executed from the employees gross wages So under those circumstances, it's a different story. Why? Because now they are going above and beyond. They did not plan for this They did not plan for this. How about employee death benefit and what is that? Say employee death benefit refer to the payment made by an employer to the surviving spouse So if you work for a company and you pass away The company might make a payment to your spouse child or other beneficiaries of the deceased employee Okay, that could be some sort of a Of a benefit as being an employee. You have those employee death benefit If the deceased employee had an irrevocable entitlement, what does that mean? It means the employee already worked for the money Okay, so simply put we're dealing with unpaid Salaries unpaid salaries these amounts are taxable. So if they're paying you basically think of it as back pay You already worked for this money. Now you passed away, but there's a one month one month behind that they need to pay you Well, guess what if they're paying you for that they're paying you for your effort They're paying you for your work and as a result that amount is taxable This means they must include that money in your tax return Because you earned it you earned this money. Just you did not get the cash But you already earned it now there are certain exclusion that employee death benefit could be excluded Let's take a look at those exclusion. Okay, could potentially be a tax benefit tax exempt as a gift. Okay, first The payment made the surviving spouse all children not the deceased employee estate. So they're paying directly To your spouse or children. They're not paying you The employer does not receive advantage from these payments simply put The surviving spouse or the children are not providing a service So they're giving you something to the surviving spouse or to the children But they don't expect the surviving spouse or the children to perform any work Okay, simply put the surviving spouse and children have not performed any service for the employer and not expected to perform any service If that's expected it becomes compensation Also, what we have to assume here is that the deceased employee the person that passed away Already received their full compensation. Just basically saying the same thing in other words You are not paying them for a back pay They were already fully paid and now we're going above and beyond and we wanted to give the survive We don't have to but we're giving the surviving spouse and the child an amount of money Okay, the payments are conducted following a resolution by the company's board of directors online with the company's general policy We're not making any exception here. We're not making any exception whatsoever. This is what we do after the person dies out of Charity, we don't expect anything in return. We already fully pay them We don't owe them anything, but we're gonna do this as a Inquote a charity here. That's fine as long as the can these conditions are met Let's take a look at few examples that illustrate these concepts Sam earned the $70,000 from his salary blue design is that amount taxable. What do you think? Of course, it is that's as simple as compensation. It's taxable as A reward of exceeding his performance goal the company presented him with an all-expense paid trip to Hawaii worth 5,000 Well, is that taxable and the answer is yes, there's no gift They might call it a gift But it's not a gift. It's basically you earned your compensation You did well no gifting between employers and employee. No affection. It's taxable Okay, so now simply put for talking about Sam. Sam will have 75,000 of taxable income Let's look at Emily Emily received 15,000 from her employer to assist with medical bills not covered in her insurance once again, there's no gifting no gifting and Unless here again the generally speaking, this is not taxable unless here we're going going above and beyond but based on this information This is taxable amount Okay, there's no gifting unless a company has a policy to a reimbursed employees in Everyone in this policy applies to everyone If that's the case then if they're helping her and you know, it doesn't matter how much you were just, you know If your medical bill you cannot cover your medical bills Above and beyond your insurance coverage, we will give you the money. Well, that's not we're not waiting for that So unless that At the amount is taxable. There's no gifting John received $20,000 from deceased wife employers as a support during his time of hardship. Well John's wife passed away The employer has paid John $20,000 for his time of hardship. They want to help him go through this time of hardship What we have to assume here is the wife was fully paid. So the wife before she passed away. There was no back pay Assume the wife was compensated. Here's there is no relationship between the employer Okay, there is no relationship between the employer and John the employer and John Therefore this is a gift. We're giving you a gift. They don't have to do this. They're just helping you There's no relationship between the employer and John not the wife There's a relationship between the employer and the wife, but the wife was fully paid The the relationship here between John and the employer and the employer don't have to pay John But they decided to do that. Well, that's a gift and they don't expect again Here we have to assume they don't expect John to give them anything in return to perform any work Or do anything in return given those circumstances. It's a gift. The gift is not taxable What should you do now go to far hat lectures? Look at additional resources multiple choice through false That's gonna help you understand this gift and inheritance concept Whether you are a CPA exam candidate enrolled agent candidate or an accounting student my resources can help you perform better in your college classroom and Professional certification invest in yourself. Good luck study hard and stay safe