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Exam 5: Gross Income and Exclusions

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Question 21

Multiple Choice

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

A) Assignment of income.
B) Residence in a community property law state.
C) Residence in a common law state.
D) Residence in a community property law state and assignment of income.
E) All of the choices are correct.

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

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Question 22

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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.

A) True
B) False

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Question 23

Multiple Choice

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Fran purchased an annuity that provides $12,000 quarterly payments for the next 10years. The annuity was purchased at a cost of $300,000. How much of the first quarterly payment will Fran include in her gross income?

Gambling winnings are included in gross income only to the extent that the winnings exceed gambling losses incurred during the same period.

Barney and Betty got divorced this year. In the divorce decree Betty agreed to transfer100 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?

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'semployer 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? (Round your answer to the nearest whole dollar)

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

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?

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.

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:

Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale:

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), fees ($500 per semester), and 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?

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 Teresa1,000 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 Teresainclude in gross income this year?

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 earlywithdrawal penalty if she cashes in the CD before next year. Which of the following is a true statement?

Vincent is a writer and U.S. citizen. After being out of work for the 1st 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 - 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 $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.)

To provide relief from double taxation, Congress allows a foreign-unearned income exclusion for interest and dividends earned in foreign countries.

The receipt of prizes and awards is generally taxable.

Wherewithal-to-pay represents the principle that a realized transaction should require ataxpayer to sell other assets in order to pay income taxes.

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.

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?