Question

Which of the following items are not taxable or tax deductible?

1) Life insurance proceeds on the death of an insured executive
2) Interest on municipal bonds
3) Compensation expense pertaining to some employee stock option plans
4) Expenses due to violations of the law

Answer 1

Life insurance proceeds and interest on municipal bonds are typically not taxable. Compensation expense for employee stock option plans can sometimes be deductible, depending on the plan. Expenses from violations of law are not tax deductible.

Step-by-step explanation:

To address the question on items that are not taxable or tax deductible, we must evaluate each item separately:

• Life insurance proceeds on the death of an insured executive are generally not taxable to the beneficiary and would therefore not be included as a taxable income.
• Interest on municipal bonds is often exempt from federal income taxes, making the interest not taxable.
• Compensation expense pertaining to some employee stock option plans can be deductible for the corporation issuing them, depending on the type of options and the circumstances under which they are issued.
• Expenses due to violations of the law are generally not tax deductible, as they do not constitute a regular and necessary business expense.

It's important for businesses to understand the nuances of the tax code to ensure they are not mistakenly including non-taxable items as taxable or claiming non-deductible expenses as deductions.