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Exam 5: Gross Income and Exclusions

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Question 1

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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.

F) A) and C)
G) B) and C)

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Question 2

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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.

A) True
B) False

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Question 3

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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?

The tax law defines alimony to include transfers of property (but not cash)between former spouses.

When a carpenter provides $100 of services in exchange for $100 of groceries, the carpenter has realized $100 of income.

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?

Frank received the following benefits from his employer this year. What amount must Frank include in his gross income?

The receipt of prizes and awards is generally taxable.

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?

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.

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?

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.

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?

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?

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.

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.

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 4^th to December 31^st. 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.)

Which of the following is not a necessary condition for income to be included in gross income?

Identify the item below that helps determine which taxpayer must recognize earned income.

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.