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Exam 5: Gross Income and Exclusions

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Question 71

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George purchased a life annuity for $4,200 that will provide him $105 monthly payments for as long as he lives. Based on IRS tables, George's life expectancy is 100 months. How much of the first $105 payment will George include in his gross income?

A) $105
B) $95
C) $63
D) $42
E) None of the choices are correct.

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

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Question 72

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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.

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$230,200 = $212,200 + $9,500 + $8,500
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Question 73

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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?

The receipt of prizes and awards is generally taxable.

This year Barney purchased 640 shares of Bell common stock for $19.20 per share. At year-end the Bell shares were only worth $2.40 per share. What amount can Barney deduct as a loss this year?

Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes) ?

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

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?

Lisa and Collin are married. Lisa works as an engineer and earns a salary of $183,500. Collin works at a beauty salon and reported wages of $81,500. Lisa received $640 of interest from corporate bonds and $280 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 $56,000 and his baseball card collection, valued at $2,450. As beneficiary of his father's life insurance policy, Collin also received $184,500. The couple spent a weekend in Atlantic City in November and came home with gambling winnings of $2,180. Collin was injured in an accident at the salon. He was unable to work for a month, but during this time he received $5,700 from disability insurance he purchased several years ago. Collin also received $2,850 in workers' compensation, and $2,350 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.

U.S. citizens generally are subject to tax on all income whether it is generated in the United States or in foreign countries.

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.

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.

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?

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?

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 $91,000. After the loan was discharged, Deb had total assets of $247,000 and her remaining loans totaled $239,000. What amount must Deb include in her gross income?

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

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?

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.

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.

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?