Gross Income And Exclusions Chapter 5 Test Bank Docx Spilker - Taxation of Individuals 11e Complete Test Bank by Brian Spilker. DOCX document preview.
Taxation of Individuals, 11e (Spilker)
Chapter 5 Gross Income and Exclusions
1) Gross income includes all income realized during the year.
2) Excluded income will never be subject to the federal income tax.
3) The all-inclusive definition of income means that gross income is defined very broadly.
4) A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.
5) Realized income is included in gross income unless a tax provision specifies that it can be deferred or excluded.
6) The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.
7) Wherewithal to pay represents the principle that a realized transaction should require a taxpayer to sell other assets in order to pay income taxes.
8) Barter clubs are an effective means of avoiding realization for tax purposes.
9) The cash method of accounting requires taxpayers to recognize income only when income is received as cash.
10) When a carpenter provides $100 of services in exchange for $100 of groceries, the carpenter has realized $100 of income.
11) Recognized income may be in the form of cash or property received (but not services received).
12) When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.
13) Jake sold his car for $2,400 in cash this year. He will realize a taxable gain of $1,000 if he purchased the car for $1,400.
14) When an asset is sold, the taxpayer calculates the gain or loss on the sale of the asset by subtracting the tax basis of the asset from the proceeds of the sale.
15) The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.
16) Jim received a $500 refund of state income taxes this year. Jim will not need to include the $500 in his gross income this year if he did not deduct state income taxes last year.
17) Constructive receipt represents the principle that cash-basis taxpayers will be taxed on income when it is made available to them without substantial restrictions.
18) Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the income.
19) Community property laws dictate that income earned by one spouse is treated as though it were earned equally by both spouses.
20) Interest income is taxed in the year in which it is received by the taxpayer or credited to the bank account.
21) The assignment of income doctrine requires that in order to shift income from the property producing the income to another person, the taxpayer must transfer only the income to the other person.
22) For tax purposes, unearned income is income that has not yet been realized.
23) A portion of each payment received from a purchased annuity contract represents income.
24) The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.
25) Rental income generated by a partnership is reported by the partners as dividend income on their own individual tax returns.
26) The tax law defines alimony to include transfers of property (but not cash) between former spouses.
27) Regardless of when a divorce agreement is executed, alimony is included in gross income of the recipient and is deductible for AGI by the payer.
28) The receipt of prizes and awards is generally taxable.
29) Gambling winnings are included in gross income only to the extent that the winnings exceed gambling losses incurred during the same period.
30) Generally, 85 percent of Social Security benefits are included in income of high-income taxpayers.
31) Unemployment benefits are excluded from gross income.
32) A taxpayer generally includes in gross income the amount of debt forgiven by a lender.
33) An employee may exclude up to a 40 percent employer-provided discount on services received by the employee.
34) A below-market loan (e.g., from an employer to an employee) is a common example of a transaction that generates taxable imputed income.
35) Interest earned on a federal Treasury bond is excluded from gross income (for federal tax purposes).
36) Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes).
37) Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.
38) Qualified fringe benefits received by an employee can be excluded from gross income.
39) Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.
40) Earnings from Internal Revenue Code Section 529 plans and Coverdell education savings accounts are excluded from gross income if the earnings are used to pay for qualifying educational expenditures for college students (and not for elementary or secondary education).
41) Trevor received a gift of $25,000 in cash from his rich uncle. Trevor must include $15,000 of this gift in his gross income this year.
42) Anna received $15,000 from life insurance paid upon the death of her grandmother. Anna can exclude the entire amount of the life insurance from her gross income.
43) U.S. citizens generally are subject to tax on all income whether it is generated in the United States or in foreign countries.
44) To provide relief from double taxation, Congress allows a foreign-unearned income exclusion for interest and dividends earned in foreign countries.
45) Workers' compensation benefits are excluded from gross income.
46) Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.
47) Loretta received $6,200 from a disability insurance policy that she purchased directly this year. Loretta must include all $6,200 in her gross income.
48) Brad was disabled for part of the year, and he received $11,500 of benefits from a disability insurance policy purchased by his employer. Brad must include all $11,500 of benefits in his gross income because he was not taxed on the disability insurance premiums paid by his employer.
49) Gross income includes:
A) all income from whatever source derived unless excluded by law
B) excluded income
C) deferred income
D) all realized income
E) all of these choices are correct.
50) Which of the following is not a necessary condition for income to be included in gross income?
A) income must be realized
B) income must be paid in cash
C) income cannot be excluded by law
D) income must be made available to a taxpayer on the cash basis
E) all of these choices are correct.
51) Sally is a cash-basis taxpayer and a member of the Valley Barter club. This year Sally provided 100 hours of sewing services to the barter club in exchange for two football playoff tickets. Which of the following is a true statement?
A) Sally need not recognize any gross income unless she sells the football tickets.
B) Sally's exchange does not result in taxable income.
C) Sally is taxed on the value of the football tickets even if she cannot attend the game.
D) Sally is taxed on the value of her sewing services only if she is a professional seamstress.
E) None of the choices are correct.
52) This year Barney purchased 500 shares of Bell common stock for $20 per share. At year-end the Bell shares were only worth $2 per share. What amount can Barney deduct as a loss this year?
A) $10,000
B) $9,000
C) $1,000
D) Barney can deduct $10,000 only if he includes $1,000 in his taxable income.
E) None of the choices are correct – Barney is not entitled to a loss deduction.
53) Hillary is a cash-basis calendar-year taxpayer. During the last week of December she received a letter containing a $5,000 check for services rendered. Which of the following is a true statement?
A) Hillary is taxed on the $5,000 of service income in the year she cashes the check.
B) Hillary is taxed on the $5,000 of service income in the year the check was mailed.
C) Hillary is taxed on the $5,000 of service income in the year she receives the check.
D) Hillary is taxed on the $5,000 of service income in the year she provides the services.
E) None of the choices are correct.
54) Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:
A) Tax refund rule
B) Constructive receipt
C) Return of capital principle
D) Tax benefit rule
E) None of the choices are correct
55) Identify the rule dictating that on sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale.
A) Tax benefit rule
B) Constructive receipt
C) Return of capital principle
D) Wherewithal to pay
E) None of the choices are correct
56) Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g., no obligation to repay the amount).
A) Claim of right
B) Constructive receipt
C) Return of capital principle
D) Wherewithal to pay
E) None of the choices are correct
57) Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son, Steve. This year Steve received checks in the amount of $62,000 for Dave's plumbing services. Which of the following is a true statement?
A) Dave is taxed on $62,000 of plumbing income this year.
B) Steve is taxed on $62,000 of plumbing income this year.
C) Steve is taxed on $62,000 of income from gifts received this year.
D) Dave may deduct the $62,000 received by Steve.
E) None of the choices are correct.
58) Jack and Jill are married. This year Jack earned $72,000, Jill earned $80,000, and they received $4,000 of interest income from a joint savings account. How much gross income would Jack report if he files married filing separately from Jill?
A) $72,000 if they reside in a common law state.
B) $74,000 if they reside in a community property law state.
C) $76,000 if they reside in a common law state.
D) $78,000 if they reside in a community property law state.
E) None of the choices are correct.
59) Identify the item below that helps determine which taxpayer must recognize earned income.
A) Residence in a community property law state
B) Assignment of income
C) Residence in a common law state
D) Both residence in a community property law state and residence in a common law state
E) All of these choices are correct.
60) This year Kevin provided services to several clients, each of whom paid with different types of property. Which of the following payments is not included in Kevin's gross income?
A) Cash
B) Shares of stock listed on the New York Stock Exchange.
C) A used car
D) Gold coins
E) All of these are included in gross income
61) Emily is a cash-basis taxpayer, and she was an especially productive salesperson last year. In December of last year her supervisor told Emily she had earned a $5,000 bonus. However, Emily received the bonus check after year-end. Identify the principle that will determine when Emily is taxed on the bonus.
A) Assignment of income
B) Constructive receipt
C) Return of capital principle
D) Wherewithal to pay
E) All of these choices are correct.
62) Ophra is a cash-basis taxpayer who is employed in the publishing industry. This year her employer informed her that because of her outstanding performance she is entitled to a free world cruise. Ophra asked her employer to issue the cruise tickets to her parents, and he complied with this request. Identify the principle that will determine whether Ophra or her parents are taxed on the value of the cruise tickets.
A) Assignment of income
B) Constructive receipt
C) Return of capital principle
D) Wherewithal to pay
E) All of these choices are correct.
63) This year Henry realized a gain on the sale of an antique car that he inherited from his uncle. The buyer has promised to pay Henry in installment payments over the next few years. Identify the principle that will determine when Henry should be taxed on the gain from the sale.
A) Assignment of income
B) Constructive receipt
C) Return of capital principle
D) Wherewithal to pay
E) All of these choices are true.
64) This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year. Mary included a total of $4,000 of state income taxes when she itemized deductions last year. What amount of the refund, if any, should Mary include in her gross income this year?
A) $200 is included because Mary itemized her deductions last year.
B) $200 is included if itemized deductions exceeded the standard deduction by $200.
C) $200 is included because itemized deductions exceeded the standard deduction.
D) $200 is included even if Mary claimed the standard deduction.
E) None of the choices are correct - refunds of state income taxes are not included in gross income.
65) Opal deducted $2,400 of state income taxes on her tax return last year. This year she received a state income tax refund of $170. What amount of the refund, if any, should Opal include in her gross income if last year her total itemized deductions exceeded the standard deduction by $350?
A) $2,050
B) $350
C) $180
D) $170
E) None of these – refunds of state income taxes are not included in gross income
66) Wilma has a $25,000 certificate of deposit (CD) at the local bank. The interest on this certificate, $1,000, was credited to her account this year, but she must pay an early withdrawal penalty if she cashes in the CD before next year. Which of the following is a true statement?
A) Wilma must include the $1,000 of interest in her income this year.
B) Wilma must include the $1,000 of interest in her income when she cashes the CD.
C) Wilma must include the $1,000 of interest in her income this year only if the bank waives the early withdrawal penalty.
D) Wilma must include the $1,000 of interest in her income next year if she does not pay the early withdrawal penalty.
E) All of the choices are correct.
67) Which of the following is a true statement about the first payment received from a purchased annuity?
A) The payment is included in gross income.
B) A portion of the payment is a return of capital.
C) The payment can only be taxed in the year after the annuity was purchased.
D) The payment is not taxed until the annuity payments cease altogether.
E) None of these are true statements.
68) Which of the following describes how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?
A) The expected return is divided by the number of payments.
B) The original investment is divided by the prevailing interest rate.
C) The original investment is divided by the number of payments.
D) The expected return is divided by the prevailing interest rate.
E) None of the choices are correct.
69) George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives. Based on IRS tables, George's life expectancy is 100 months. How much of the first $80 payment will George include in his gross income?
A) $80
B) $72
C) $48
D) $32
E) None of the choices are correct.
70) Fran purchased an annuity that provides $12,000 quarterly payments for the next 10 years. The annuity was purchased at a cost of $300,000. How much of the first quarterly payment will Fran include in her gross income?
A) $7,500
B) $4,500
C) $12,000
D) $32,400
E) None of the choices are correct.
71) Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives. Later this year Harold will recover the remainder of his cost of the annuity. Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?
A) Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income.
B) Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity.
C) The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity.
D) Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy.
E) All of these choices are correct.
72) To calculate a gain or loss on the sale of an asset, the proceeds from the sale are reduced by which of the following?
A) Tax basis of the property
B) Selling expenses
C) Amount realized
D) Tax basis of the property and selling expenses
E) All of these choices are correct
73) Nate is a partner in a partnership that received $5,000 of interest income this year. Nate's share of the interest is $1,000, and he should report this income on his individual return as:
A) business income
B) income from a partnership
C) interest income
D) dividend income because the partnership intends to organize next year as a limited liability company
E) None of the choices are correct
74) Which of the following statements about alimony payments is true for divorce agreements executed before 2019?
A) To qualify as alimony, payments must be made in cash.
B) Alimony payments are includible in the gross income of the recipient.
C) To qualify as alimony, payments cannot continue after the death of the recipient.
D) To qualify as alimony, payments must be made under a written agreement or divorce decree that does not designate the payments as "nonalimony" or child support.
E) All of the choices are correct.
75) Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to pay Barney $24,000 per year for five years (or until Barney's death or remarriage) and $10,000 per year until their daughter, Pebbles, turns 19 years old. What amount (if any) is included in Barney's gross income in 2019?
A) $10,000
B) $24,000
C) $34,000
D) $39,000
E) None of the payments are included in gross income
76) Charles and Camilla got divorced in 2018. Under the terms of the decree Charles pays Camilla $50,000 in cash in each of the next five years (or until Camilla's death or remarriage). In addition, Charles transferred a castle worth $2,000,000 to Camilla in 2018 and will pay $12,000 per year to support their son, Clyde, until he turns 19 years old. What amount (if any) is included in Camilla's gross income in 2019?
A) $2,062,000
B) $12,000
C) $50,000
D) $2,050,000
E) None of the payments are included in gross income
77) Hal Gore won a $1 million prize for special contributions to environmental research. This prize is awarded for public achievement, and Hal directed the awarding organization to transfer $400,000 of the award to the Environmental Protection Agency. How much of the prize should Hal include in his gross income?
A) $400,000
B) $600,000
C) $1,000,000
D) None of the choices are correct because all prizes are excludable
E) None of the choices are correct because prizes from charities are excludable
78) Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant. Ethan indicated that he would transfer the prize to the local hospital. How much of the prize should Ethan include in his gross income?
A) $25,000
B) $25,000 because all prizes are taxable
C) $0 because prizes transferred to charities are excludable
D) $0 because all prizes are excludable
E) $0 because prizes from charities are excludable
79) This year Ed celebrated his 25th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?
A) $2,250
B) $2,000
C) $250
D) $0 if Ed offers to contribute his watch and bonus to a qualified charity
E) $0—all employee awards are excluded from gross income
80) Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the racetrack, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?
A) $1,450
B) $1,200
C) $750
D) $250
E) $0—gambling winnings are not included in gross income
81) Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of Social Security payments. What amount must Bernie include in his gross income?
A) $250,000
B) $255,000
C) $258,500
D) $260,000
E) $0
82) Bart, a single taxpayer, has recently retired. This year, he received $24,000 in pension payments and $5,000 of Social Security payments. What amount must Bart include in his gross income for the Social Security payments?
A) $4,250
B) $2,500
C) $1,500
D) $750
E) $0
83) Karl works at Moe's grocery. This year Karl was paid $43,000 in salary, but he was allowed to purchase his groceries at 10 percent below Moe's cost. This year Karl spent $3,600 to purchase groceries, costing Moe $4,000. The groceries were worth $6,000. What amount must Karl include in his gross income?
A) $46,600
B) $47,000
C) $49,000
D) $43,400
E) $45,500
84) Joyce's employer loaned her $50,000 this year (interest-free) to buy a new car. If the federal interest rate was 3 percent, which of the following is correct?
A) Joyce recognizes $1,500 of taxable interest income.
B) Joyce's employer recognizes $1,500 of deductible interest expense.
C) Joyce recognizes $1,500 of imputed compensation income.
D) Joyce recognizes $1,500 of imputed dividend income.
E) None of the choices are correct.
85) Janine's employer loaned her $5,000 this year (interest-free) to buy a used car. If the federal interest rate was 4 percent, which of the following is correct?
A) Janine recognizes $200 of taxable interest income.
B) Janine's employer recognizes $200 of deductible interest expense.
C) Janine recognizes $200 of imputed compensation income.
D) Janine recognizes $200 of imputed dividend income.
E) None of the choices are correct.
86) Deb has found it very difficult to repay her loans. Because of these difficulties, the bank decided to forgive one of her most recent loans, an amount of $45,000. After the loan was discharged, Deb had total assets of $232,000 and her remaining loans totaled $217,000. What amount must Deb include in her gross income?
A) $15,000
B) $45,000
C) $30,000
D) $28,000
E) $0—Deb was not solvent when the loan was discharged
87) Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes)?
Bond | Interest | |
General Motors | $ | 1,450 |
City of New York |
| 900 |
State of New Jersey |
| 1,200 |
U.S. Treasury |
| 850 |
| ||
A) $1,450
B) $2,300
C) $2,650
D) $3,550
E) $4,400
88) This year, Fred and Wilma, married filing jointly, sold their home (sales price $750,000; cost $200,000). All closing costs were paid by the buyer. Fred and Wilma owned and lived in their home for 20 years. How much of the gain is included in gross income?
A) $550,000
B) $300,000
C) $250,000
D) $50,000
E) None of the choices are correct.
89) This year, Barney and Betty sold their home (sales price $750,000; cost $200,000). All closing costs were paid by the buyer. Barney and Betty owned and lived in their home for 18 months. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?
A) $550,000
B) $300,000
C) $250,000
D) $50,000
E) None of the choices are correct.
90) Frank received the following benefits from his employer this year. What amount must Frank include in his gross income?
Benefits Received | Amount | ||
Salary | $ | 54,450 | |
Health insurance |
| 2,900 | |
Group-term life insurance (face $50,000) |
| 1,800 | |
A) $54,450
B) $57,350
C) $56,250
D) $59,150
E) $0—these benefits are excluded from gross income.
91) Ben received the following benefits from his employer this year. What amount must Ben include in his gross income?
Benefit | Value | ||
Health insurance coverage – paid by employer | $ | 5,800 | |
Group-term life insurance premiums (face $50,000) – paid by employer |
| 4,270 | |
Disability insurance coverage (assume it is considered purchased by Ben) |
| 3,600 | |
Whole-life insurance premiums ($100,000) – paid by employer |
| 7,000 | |
A) $9,400
B) $11,070
C) $10,600
D) $7,000
E) $0—none of these benefits are included in gross income.
92) Shaun is a student who has received an academic scholarship to State University. The scholarship paid $14,000 for tuition, $2,500 for fees, and $1,000 for books. In addition, Shaun's dormitory fees of $8,500 were paid by the university when he agreed to counsel freshman on campus living. What amount must Shaun include in his gross income?
A) $9,500
B) $11,000
C) $2,500
D) $8,500
E) $0—none of these benefits are included in gross income.
93) Graham has accepted an offer to do graduate work in the chemistry department at State University. The chemistry department offered Graham a $5,000 tuition reduction and $3,500 toward the cost of room and meals. Under the terms of the scholarship Graham must work in the chemistry labs during the summer as a research assistant. What amount must Graham include in his gross income?
A) $8,500
B) $5,000
C) $3,500
D) $2,500
E) $0—none of these benefits are included in gross income
94) Sam, age 45, saved diligently for his college education by putting part of his pay into U.S. Series EE savings bonds. Sam purchased the bonds for $6,500, and this year he redeemed the bonds for $7,200. He has no other income this year. What amount must Sam include in his gross income?
A) $7,200
B) $6,500
C) A maximum of $350 if Sam uses the proceeds to pay for his college tuition and fees
D) $700 unless Sam uses at least some portion of the proceeds to pay for his college tuition and fees
E) $0—proceeds from cashing bonds sold at a discount are not realized income
95) Brenda has $15,000 in U.S. Series EE savings bonds and she is considering whether to cash in the bonds. Under what conditions can Brenda exclude the interest on the savings bonds from her gross income?
A) Brenda can exclude the interest if she uses the proceeds to pay for college tuition.
B) Brenda's modified AGI must be below a phase-out range for the exclusion.
C) The proceeds must be used for higher education expenses of Brenda, her spouse, or Brenda's dependent.
D) All of these are necessary conditions for Brenda to exclude the interest.
E) None of these are correct – the interest is always included in gross income.
96) In January of the current year, Dora made a gift of stock to her granddaughter. At the time of the gift, the stock was worth $15,000. Several months later in the same year after the gift, a $500 dividend was declared on the stock and paid to Dora's granddaughter. What amount must Dora's granddaughter include in her gross income for the current year?
A) $2,000
B) $15,000
C) $15,500
D) $2,500
E) None of the choices are correct.
97) Irene's husband passed away this year. After his death, Irene received $250,000 of proceeds from life insurance on her husband, and she inherited her husband's stock portfolio, worth $750,000. What amount must Irene include in her gross income?
A) $1 million.
B) $750,000.
C) $500,000.
D) $0, but only if Irene does not opt to receive the life insurance proceeds in a lump sum.
E) $0—none of these benefits are included in gross income.
98) Helen is a U.S. citizen and a CPA who moved to London, England, three years ago to work for a British company. This year, she spent the entire year in London and earned a salary of $110,000. How much of her salary will she be allowed to exclude from gross income in the United States?
A) $82,000.
B) $105,900.
C) $105,500.
D) $108,000.
E) All of her salary is included in gross income.
99) Hank is a U.S. citizen and is doing a three- to six-year assignment as a sales executive in Paris for a French company. The assignment began this year. Hank earned $109,500 working for the French company this year but only lived in France for 180 days (out of 365 days). He will live full time in France next year. What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the United States (rounded to the nearest hundred dollars)?
A) Hank can exclude his entire salary because he worked more than 330 days overseas.
B) $102,000
C) $52,200
D) $105,900
E) None of his salary can be excluded from gross income because Hank must reside overseas for the entire year.
100) NeNe is an accountant and a U.S. citizen who has accepted a permanent position in Madrid, Spain, for a Spanish financial services company. This year, NeNe spent the entire year working in Madrid. NeNe's employer paid $40,000 of her Madrid housing expenses this year. What amount of the $40,000 housing payments may NeNe exclude?
A) NeNe can exclude all of the housing payment because she worked more than 330 days overseas.
B) $16,944
C) $23,056
D) $14,826
E) None of her salary can be excluded from gross income.
101) Pam recently was sickened by eating spoiled peanut butter. She successfully sued the manufacturer for her medical bills ($3,700), her emotional distress ($6,000—she now fears peanut butter), and punitive damages ($44,000). What amount must Pam include in her gross income?
A) $44,000
B) $50,000
C) $47,700
D) $9,700
E) $0—none of these benefits are included in gross income
102) This year Zach was injured in an auto accident. As a result, he received the following payments.
Zach received $18,000 of disability pay. Zach has disability insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $4,300 in disability premiums for Zach this year.
Zach's hospital bills totaled $4,500 and were paid by his health insurance. Zach has health insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $6,250 in health insurance premiums for Zach this year.
What amount must Zach include in his gross income?
A) $22,500
B) $18,000
C) $4,500
D) $10,550
E) $0—none of these benefits are included in gross income
103) Samantha was ill for four months this year. Samantha missed work during this period, but disability insurance paid $18,000 of disability pay to replace her missed salary. Samantha shares the cost of the insurance with her employer. This year Samantha's employer paid $2,200 in disability premiums for Samantha as a nontaxable fringe benefit and Samantha paid the remaining $1,100 of premiums from her salary. What amount of the disability pay must Samantha include in her gross income (Rounded to the nearest whole dollar)?
A) $18,000
B) $12,000
C) $7,000
D) $1,100
E) $0—none of these disability pay is included in gross income
104) Acme published a story about Paul, and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages. Paul won an award of $20,000 for damages, $5,500 for emotional distress, and $50,000 for punitive damages. What amount must Paul include in his gross income?
A) $5,500
B) $20,000
C) $50,000
D) $70,000
E) All of these benefits are included in gross income.
105) This year Ann has the following stock transactions. What amount is included in her gross income if Ann paid a $200 selling commission for each sale?
Shares | Firm | Total Purchase price | Sales price | Value at year-end | |||||
100 | IBM | $ | 5,000 |
|
| $7,000 | |||
200 | ATT |
| 7,500 | $ | 9,500 |
| |||
500 | Dell |
| 12,500 |
| 13,000 |
| |||
| |||||||||
106) Blake is a limited partner in Kling-On Partners. This year Kling-On reported that Blake's share of dividend income was $3,700 and his share of municipal interest was $2,750. Early this year Blake found a bundle of $100 bills in the alley outside his apartment. When no one claimed the money, the cash (a total of $2,400) was returned to Blake. Finally, Blake earned salary of $42,000 but almost $6,500 was withheld for income taxes and FICA tax. Compute Blake's realized income and gross income.
107) Henry works part time on auto repairs and restoration projects. This year Henry was paid $5,400 for repairs he made to his neighbor's auto. Henry's neighbor promised to pay Henry another $2,200 in cash next year. Henry's brother borrowed $4,100 in cash in December of this year and gave him a negotiable promissory note for $4,300, due in three months with interest. Henry sold the note in January of next year for $3,500. Finally, Henry restored a car for the football coach. The coach paid him this year with a pass to next year's football games. The pass is worth $750. Compute Henry's gross income for this tax year, assuming that he uses the cash basis of accounting.
108) Juan works as a landscaper for local businesses on weekends, and he often provides services in exchange for property. This year Juan provided lawn-mowing services in exchange for $1,275 of car repair services, $3,570 of groceries, and a certificate of deposit (CD) for $4,050. The CD matures next year with interest. Finally, Juan received a gift card that can only be applied for $850 of clothing at a local mall. Juan has only applied the gift card to purchase $100 of clothing. Compute Juan's gross income, assuming that he uses the cash basis of accounting.
109) This year Kelsi received a $1,900 refund of state income taxes that she paid last year. Last year Kelsi claimed itemized deductions of $13,100, including $2,800 of state income taxes. How much of the refund, if any, must Kelsi include in gross income if the standard deduction last year was $12,000?
110) In April of this year Victoria received a $1,400 refund of state income taxes that she paid last year. Last year Victoria claimed itemized deductions of $14,590. Victoria's itemized deductions included state income taxes paid of $3,750. How much of the refund, if any, must Victoria include in gross income if the standard deduction last year was $12,000?
111) Aubrey and Justin file married filing separately. This year, Aubrey earned salary of $130,000, and Justin earned salary of $88,000. Aubrey and Justin live in a community property state. How much income earned will Justin report on his tax return for this year?
112) Aubrey and Justin file married filing separately. This year, Aubrey earned salary of $130,000, and Justin earned salary of $88,000. Aubrey and Justin live in a common law state. How much income earned will Justin report on his tax return for this year?
113) Cyrus is a cash method taxpayer who reports on a calendar-year basis. Last year Cyrus received salary of $88,000 and at year-end his employer announced that Cyrus would receive an additional year-end bonus of $10,000 in cash and a new TV worth $2,000. Cyrus didn't receive his bonus check until January of this year and the TV didn't arrive until March of this year. Determine the amount Cyrus should include in his gross income for last year.
114) Kathryn is employed by Acme and they have been very pleased with her performance this year. In December Kathryn was granted an extra week off with pay (pay for the week totaled $2,000). In addition, Kathryn was given tickets to a football bowl game worth $800. (Kathryn didn't use the tickets—she hates football.) Right before year-end Kathryn was allowed to order new office furniture and Acme told her to take the old office furniture home. The office furniture was originally purchased for $7,000, but it was fully depreciated and only worth about $1,000. Determine the amount Kathryn should include in her gross income.
115) Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years. Charles paid $180,000 for the annuity. How much of the first $20,000 payment should Charles include in gross income?
116) This year Larry received the first payment from an annuity that promises to pay him $3,000 per month for the rest of his life. The IRS tables indicate that given Larry's age, he should expect to receive 310 monthly payments. The cost of the annuity to Larry was $620,000. How much of the first $3,000 payment should Larry include in gross income?
117) Desai and Lucy divorced in 2018. Lucy has custody of their child, Andrea, and under the divorce decree Desai pays Lucy $120,000 per year. The payments must be made in cash and will cease if Lucy dies or remarries. The payments drop to $100,000 per year once Andrea reaches the age of 18. How much of the payments should Lucy include in gross income this year?
118) J.Z. (single taxpayer) is retired and received $10,000 of Social Security benefits this year. How much of the $10,000 Social Security benefits are taxable if his only other income was $28,000 of pension income?
119) Wendell is an executive with CFO Tires. At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of 1 percent. Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing federal interest rate. Wendell used the funds as a down payment on a vacation home, and during the year he paid $500 of interest to CFO. On December 31, CFO forgave the loan and remaining interest. What amount of gross income does Wendell recognize from the loan this year?
120) Bobby and Sissy got married two and a half years ago. Since that time, they have lived in Bobby's home. Sissy sold her previous home three years ago and excluded her entire gain ($80,000) at that time. Bobby and Sissy decided to move to a bigger home this year. As a result, they sold Bobby's home for $500,000 (original cost $150,000). How much of the gain from the sale is taxable?
121) Robert will be working overseas on a permanent assignment for an international company beginning on March 1 of this year (306 days this year). His salary is $11,000 per month while Robert is overseas, but only $9,200 per month otherwise. What is the minimum amount of Robert's salary that he must include in gross income this year? (Round your final answer to the nearest whole dollar amount and assume that there are 365 days in this year.)
122) Simon was awarded a scholarship to attend State Law School from Gary Harris & Associates, Attorneys at Law. The scholarship pays Simon's tuition ($7,000 per semester) and fees ($500 per semester) and provides a $4,500 per-semester stipend to pay for food and housing. In order to qualify for the stipend, Simon must work 10 hours per week at Gary Harris & Associates during the term. How much of the scholarship is Simon required to include in gross income?
123) This fall Angelina, age 35, plans to attend college. To fund her tuition she cashed in Series EE savings bonds with a redemption value of $24,000 and an original cost of $16,800. Angelina plans on spending $7,200 of the proceeds to pay tuition. The redemption proceeds are Angelina's only source of income. What amount of interest must Angelina include in gross income this year?
124) Teresa was married on November 1 of this year and on that day received numerous gifts from her extended family. Her grandfather presented Teresa with a check for $15,000; her uncle gave Teresa 1,000 shares of Ford stock worth $10 per share (the uncle purchased the shares for $25 each); and her aunt presented Teresa with $50,000 of corporate bonds. (Teresa received $1,500 of semiannual interest from the bonds on December 31 of this year.) Finally, Teresa's parents paid off $50,000 of her student loan debt, including $2,000 of accrued interest. What amount, if any, must Teresa include in gross income this year?
125) Andres has received the following benefits this year.
|
|
Salary | $92,000 |
Contribution to qualified pension plan | 10,200 |
Qualified health insurance premiums | 8,400 |
Year-end bonus | 15,000 |
Group-term life insurance premiums (face = $40,000) | 1,750 |
Whole-life insurance premiums (face = $100,000) | 2,420 |
Disability insurance premiums | 1,800 |
| |
Besides these benefits Andres missed work for two months due to an illness. During his illness Andres received $6,500 in sick pay from a disability insurance policy. Assume Andres has disability insurance provided by his employer as a nontaxable fringe benefit. What amount, if any, must Andres include in gross income this year?
126) This year Joseph joined the board of directors for a company. Besides his director's fees, Joseph received the following employee benefits:
Salary | $204,000 |
Contributions to qualified pension plan | 25,000 |
Qualified health insurance premiums | 8,000 |
Stock bonus | 20,000 |
Annual director's fee | 15,000 |
Group-term life insurance premiums (face = $40,000) | 1,800 |
| |
The stock bonus consisted of 5,000 shares of Bell stock given to Joseph as compensation. At the time of the transfer the stock was listed at $4 per share. What amounts, if any, should Joseph include in gross income this year?
127) Caroline is retired and receives income from a number of sources. The interest payments are from bonds that Caroline purchased over past years and a disability insurance policy that Caroline purchased. Calculate Caroline's gross income.
|
|
Distributions from qualified pension plan | $5,400 |
Interest on bonds issued by city of Austin, Texas | 2,500 |
Social Security benefits | 8,200 |
Interest on U.S. Treasury bills | 2,300 |
Interest on bonds issued by Ford Motor Company | 1,900 |
Interest on bonds issued by city of Quebec, Canada | 2,750 |
Disability insurance benefits | 9,500 |
| |
128) Alex is 63 years old and retired. This year Alex won $212,200 in the state lottery. Alex also received $20,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 15 years, for $157,500. Alex received $10,000 in Social Security benefits for the year. Calculate Alex's gross income.
129) Vincent is a writer and a U.S. citizen. After being out of work for the first half of the year, Vincent moved permanently to Ireland on July 4. He worked for an Irish magazine and earned $110,000 in salary from July 4th to December 31st. Earlier in April of this year Vincent received a $1,500 refund of the $3,600 in state income taxes his previous employer withheld from his pay last year. Vincent claimed $12,800 in itemized deductions last year (the standard deduction for a single filer was 12,000). Vincent wants to elect to use the foreign-earned income exclusion to the extent he is eligible. Calculate Vincent's gross income for this year. (Round your final answer to the nearest whole dollar amount and assume there are 365 days in the year.)
130) Lisa and Collin are married. Lisa works as an engineer and earns a salary of $116,000. Collin works at a beauty salon and reported wages of $45,000. Lisa received $500 of interest from corporate bonds and $250 of interest from a municipal bond. Lisa acquired these bonds prior to her marriage to Collin. Collin's father passed away on April 14. He inherited cash of $50,000 and his baseball card collection, valued at $2,000. As beneficiary of his father's life insurance policy, Collin also received $150,000. The couple spent a weekend in Atlantic City in November and came home with gambling winnings of $1,200. Collin was injured in an accident at the salon. He was unable to work for a month, but during this time he received $5,000 from disability insurance he purchased several years ago. Collin also received $2,000 in workers' compensation, and $1,500 from the salon for the emotional trauma he suffered from the accident. Calculate Lisa and Collin's gross income for this year, assuming they will file married filing jointly.