ACC 330 Module Two Income Assignment

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Southern New Hampshire University *

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330

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Accounting

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Jun 4, 2024

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ACC 330 Module Two Income Assignment Criteria Example Case #1 Case #2 Case #3 Case Selected Taxpayer D received royalties from authoring a textbook for a science course taught at the local community college. Caleb received a prize totaling $400 from the local civic center without any action on their part and without requirement to provide any services as a condition of receiving the prize Interest of $500 was earned on state and local bonds that were gifted to Tannon when they turned eighteen. Justin received $12,000 in alimony payments for a divorce agreement settled in 2021. Summary Taxation of Royalties Taxation of Prizes and Awards Interest on State and local bonds Alimony Payments Authoritative Primary Resource IRC Section 61(a)(6) - Gross income defined. https:// uscode.house.gov/ view.xhtml? req=granuleid:USC-prelim- title26- section61&num=0&edition =prelim IRC Section 74(b) – Prizes and Awards. https://uscode.house.gov/ view.xhtml? req=granuleid:USC-prelim- title26- section74&num=0&edition=p relim IRC Section 103(a) – Interest on State and local bonds. https://uscode.house.gov/ view.xhtml? req=granuleid:USC-prelim- title26- section103&num=0&edition=p relim IRC Section 71 - Repealed. Pub. L. 115-97, title I, §11051(b)(1) (B), Dec. 22, 2017, 131 Stat. 2089 https://uscode.house.gov/ view.xhtml?req=granuleid:USC- prelim-title26- section71&num=0&edition=pr elim Secondary Resource IRS Publication 525 – Taxable and Nontaxable Income p. 17 https://www.irs.gov/ pub/irs-pdf/p525.pdf IRS Publication 525 – Taxable and Nontaxable Income p. 34 https://www.irs.gov/pub/irs- pdf/p525.pdf Tax Topic 403, Interest Received https://www.irs.gov/ taxtopics/tc403 IRS Publication 525 – Taxable and Nontaxable Income p. 2 https://www.irs.gov/pub/irs- pdf/p525.pdf Supplemental Resource(s) What is Taxable and Nontaxable Income? Taxes on Prize Winnings and More! IRS Publication 550 – Investment Income and IRS Publication 504 – Divorced or Separated Individuals p. 12

Criteria Example Case #1 Case #2 Case #3 IRS.gov. March 14, 2022. https://www.irs.gov/ businesses/small- businesses-self- employed/what-is- taxable-and-nontaxable- income#:~:text=Royalties %20from%20copyrights %2C%20patents%2C %20and,)%2C %20Supplemental %20Income%20and %20Loss . "Royalty Income: Everything You Need to Know” (2020) https:// www.upcounsel.com/ royalty-income https://www.hrblock.com/ tax-center/income/other- income/taxes-on-prize- winnings/ Expenses. IRS.gov. 2022. https://www.irs.gov/ publications/p550 https://www.irs.gov/pub/irs- pdf/p504.pdf Opinion (Taxable or Nontaxable) Taxable Taxable Nontaxable Nontaxable Confidence Level (Low/Medium /High) Medium High High High Interpretation The IRC Section 61(a)(6) identifies that “Except as otherwise provided in this subtitle, gross Although taxpayer meets requirements for IRC 74(b)(1) and IRC 74(b)(2), taxpayer does not meet requirement According to IRC 103(a), interest from State or local bonds are exempt from calculation of gross income. IRC 71 repealed the law requiring those receiving alimony to report it as taxable income. This also nullified the

Criteria Example Case #1 Case #2 Case #3 income means all income from whatever source derived, including (but not limited to) the following items” and includes royalties as one of those items. of IRC 74(b)(3) to avoid taxation of the award won. IRC 74(b)(3) requires that “The prize or award is transferred by the payor to a governmental unit or organization described in paragraph (1) or (2) of section 170(c) pursuant to a designation made by the recipient.” ability to claim alimony payments as tax deductions. This became effective as of 1/1/2019. (Optional) Recommended suggestions or request for further information needed Determine if the royalties received will be part of an ongoing writing business or contracted service (i.e. per Tax Adviser, “The IRS has ruled that an individual who writes only one book as a sideline and never revises it is not regularly engaged in an occupation or profession, and the book royalties are not considered earnings from self-employment. However, preparing new editions of the book and writing other books and materials reflect the

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