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Exam 5: Gross Income and Exclusions

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Question 31

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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) Zero - None of these benefits is included in gross income

F) C) and D)
G) A) and E)

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Question 32

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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? $\begin{array}{ccccc}&&\text { Total } &&\text { Value} &\\\underline{\text { Shares }} & \underline{\text { Firm }} & \underline{\text { Purchase price }} & \underline{\text { Sales price }} & \underline{\text { at year end }} \\100 & \text { IBM } & \$ 5,000 & & \$ 7,000 \\200 & \text { ATT } & 7,500 & 9,500 & \\500 & \text { Dell } & 12,500 & 13,000 &\end{array}$

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$2,100. ATT: ($9,500...

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Question 33

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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?

The all-inclusive definition of income means that gross income is defined very broadly.

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 is taxable if his only other income was $28,000 of pension income?

Ben's employer offers employees the following benefits. What amount must Ben include in his gross income? $\begin{array}{c}\begin{array}{l}\underline{\text{Benefit}}\\\text{Health insurance coverage}\\\text{Group term life insurance (\$ 50,000) }\\\text{Disability insurance coverage (considered purchased by Ben) }\\\text{Whole life insurance coverage (\$ 100,000) }\\\end{array}\begin{array}{lll}&&\end{array}\begin{array}{lll}\underline{\text { Value }} \\\$ 5,800 \\4,270 \\3,600 \\7,000\\\end{array}\end{array}$

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?

This year Joseph joined the board of directors. Besides his director's fees, Joseph received the following employee benefits: $\begin{array}{c}\begin{array}{lll}\text{Salary}\\\text{Contributions to qualified pension plan}\\\text{Qualified health insurance premiums}\\\text{Stock bonus}\\\text{Annual director's fee}\\\text{Group-term life insurance premiums (face = 40,000 )}\\\end{array}\begin{array}{lll}&&\end{array}\begin{array}{r}\$204,000 \\25,000 \\8,000 \\20,000 \\15,000 \\1,800\\\end{array}\end{array}$ 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?

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?

A taxpayer generally includes in gross income the amount of debt forgiven by a lender.

This year, Fred and Wilma 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?

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?

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.

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?

A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

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 loans debt including $2,000 of accrued interest. What amount, if any, must Teresa include in gross income this year?

Jack and Jill are married. This year Jack earned $72,000 and 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-separate from Jill?

Income is included in gross income unless a tax provision specifies that it can be deferred or excluded.

Joyce's employer loaned her $50,000 this year (interest-free) to buy a new car. If the federal interest rate was 3%, which of the following is correct?