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Exam 5: Gross Income and Exclusions

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Question 31

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

A) True
B) False

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

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

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Question 33

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

The assignment of income doctrine requires that to shift income from property to another person, the taxpayer must transfer only the income to the other person.

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

Bobby and Sissy got married 2.5 years ago. Since that time, they have lived in Bobby's home. Sissy sold her previous home three years ago and excluded her entire gain ($80,000) at that time. Bobby and Sissy decided to move to a bigger home this year. As a result, they sold Bobby's home for $500,000 (original cost $150,000). How much of the gain from the sale is taxable?

This year Zach was injured in an auto accident. As a result he received the following payments. Zach received $18,000 of disability pay. Zach has disability insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $4,300 in disability premiums for Zach this year. Zach's hospital bills totaled $4,500 and were paid by his health insurance. Zach has health insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $6,250 in health insurance premiums for Zach this year. What amount must Zach include in his gross income?

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:

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 for $3,500. Finally, Henry restored a car for the football coach. The coach paid him with a pass to next year's football games. The pass is worth $750. Compute Henry's gross income assuming that he uses the cash basis of accounting.

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.

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?

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 $8,690. 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 $6,100?

Wendell is an executive with CFO Tires. At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of one percent. Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing Federal interest rate. Wendell used the funds as a down payment on a vacation home and during the year he paid $500 of interest to CFO. On December 31, CFO forgave the loan and remaining interest. What amount of gross income does Wendell recognize from the loan this year?

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?

This year Kelsi received a $1,900 refund of state income taxes that she paid last year. Last year Kelsi claimed itemized deductions of $7,200 including $2,800 of state income taxes. How much of the refund, if any, must Kelsi include in gross income if the standard deduction last year was $6,100?

To calculate a gain or loss on the sale of an asset, the proceeds from the sale are reduced by which of the following?

Interest earned on a Federal Treasury bond is excluded from gross income (for federal tax purposes).

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

Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes) ? $\begin{array} { l r } { \underline { \text { Bond } } } & \underline { \text { Interest } } \\\text { General Motors } & \$ 1,450 \\\text { City of New York } & 900 \\\text { State of New Jersey } & 1,200 \\\text { U.S. Treasury } & 850\end{array}$

Generally, 85 percent of Social Security benefits are included in income of high income taxpayers.