Question

Which of the following types of imputed income are NOT included in gross income (i.e. are NOT taxable)?

a. A bargain purchase between a father and his son
b. An employer's $12,000 loan to an employee with no interest on the note
c. Employee discounts of 25% on services

Answer 1

An employee discount on services is generally not included in gross income if it does not exceed the employer's gross profit percentage on services. However, a 25% discount could be taxable if it surpasses this threshold.

Step-by-step explanation:

Types of Imputed Income Not Included in Gross Income

The types of imputed income that are not included in gross income and therefore are not taxable include:

• Employee discounts on services or goods, provided they are not in excess. Specifically, discounts on services must not exceed 20%, and the discount on merchandise must not be below the employer's gross profit percentage. Since the discount mentioned is 25% on services, it might be taxable if that exceeds the employer's gross profit percentage for the services. Taxability depends on specific IRS rules and thresholds.

However, other examples like a bargain purchase between family members or an employer's interest-free loan would typically be considered imputed income and may be included in gross income under IRS rules.

Adjusted gross income is calculated by subtracting any deductions and exemptions from your total earnings. It reflects the amount of income that is subject to taxation before applying any tax credits or additional taxes like the alternative minimum tax. Understanding what contributes to gross income is crucial for proper tax reporting and compliance.