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Exam 5: Gross Income and Exclusions

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Question 31

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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 the above

F) B) and E)
G) C) and E)

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Question 32

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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?

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$4,000
Explanation: J.Z.'s modified AGI ...

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Question 33

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Barney and Betty got divorced this year. In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage) . What amount (if any) is included in Barney's gross income this year?

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

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:

This year, Fred and Wilma, married filing joint, 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?

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?

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

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?

Interest income is taxed in the year in which it is received by the taxpayer or credited to the bank account.

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

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

Vincent is a writer and U.S. citizen. After being out of work for the 1^st 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 - 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 $7,100 in itemized deductions last year (the standard deduction for a single filer was 6,300). 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.)

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

Brad was disabled for part of the year and he received $11,500 of benefits from a disability insurance policy purchased by Brad's employer. Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

Identify which of the items below help determine which taxpayer must recognize earned income:

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.

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 & assume that there are 365 days in this year)

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?

Aubrey and Justin divorced on June 30 of this year. Through June 30 Aubrey earned $62,000 of salary and Justin earned $45,000. For the year Aubrey reported a total salary of $130,000 and Justin earned a total salary of $88,000. Aubrey and Justin live in a community property state. How much of the income will Aubrey report on her tax return for this year?