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Exam 5: Gross Income and Exclusions

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Question 21

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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:

A) Assignment of income
B) Constructive receipt
C) Return of capital principle
D) Wherewithal to pay
E) All of the choices are correct

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

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Question 22

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In April of this year Victoria received a $1,400 refund of state income taxes that she paid last year.Last year Victoria claimed itemized deductions of $8,940.Victoria's itemized deductions included state income taxes paid of $3,750.How much of the refund,if any,must Victoria include in gross income if the standard deduction last year was $6,350?

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$1,400 The tax benefit is the lesser of ...

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Question 23

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Barney and Betty got divorced in 2018.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?

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?

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

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

When a taxpayer sells an asset,the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

This year Ed celebrated his 25ᵗʰ year as an employee of Designer Jeans Company.In recognition of his long and loyal service,the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus.What amount must Ed include in his gross income?

Charles and Camilla got divorced in 2018.Under the terms of the decree Charles pays Camilla $50,000 in cash in each of the next five years (or until Camilla's death or remarriage) .In addition,Charles will transfer a castle worth $2,000,000 to Camilla and pay $12,000 per year to support their son,Clyde,until he turns 19 years old.What amount (if any) is included in Camilla's gross income this year?

An employee may exclude up to a 40 percent employer-provided discount on services.

Qualified fringe benefits received by an employee can be excluded from gross income.

Barter clubs are an effective means of avoiding realization for tax purposes.

Lisa and Collin are married.Lisa works as an engineer and earns a salary of $116,000.Collin works at a beauty salon and reported wages of $45,000.Lisa received $500 of interest from corporate bonds and $250 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 $50,000 and his baseball card collection,valued at $2,000.As beneficiary of his father's life insurance policy,Collin also received $150,000.The couple spent a weekend in Atlantic City in November and came home with gambling winnings of $1,200.Collin was injured in an accident at the salon.He was unable to work for a month,but during this time he received $5,000 from disability insurance he purchased several years ago.Collin also received $2,000 in workman's compensation,and $1,500 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 joint.

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

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?

In the current year,Norris,an individual,has $50,000 of ordinary income,a net short term capital loss (NSTCL) of $10,000 and a net long term capital gain (NLTCG) of $2,800.From his capital gains and losses,Norris reports:

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant.Ethan indicated that he would transfer the prize to the local hospital.How much of the prize should Ethan include in his gross 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.

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

Earnings from Internal Revenue Code Section 529 plans and Coverdell education savings accounts are excluded from gross income if the earnings are used to pay for qualifying educational expenditures for college students (and not for elementary or secondary education).