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Exam 5: Gross Income and Exclusions

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Question 41

True/False

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

A) True
B) False

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Question 42

Multiple Choice

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Brenda has $15,000 in U.S.Series EE savings bonds and she is considering whether to cash in the bonds.Under what conditions can Brenda exclude the interest on the savings bonds from her gross income?

A) Brenda can exclude the interest if she uses the proceeds to pay for college tuition.
B) Brenda's modified AGI must be below a phase-out range for the exclusion.
C) The proceeds must be used for higher education expenses of Brenda,her spouse,or Brenda's dependent.
D) All of these are necessary conditions for Brenda to exclude the interest.
E) None of these are correct - the interest is always included in gross income.

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

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Question 43

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This year Barney purchased 500 shares of Bell common stock for $20 per share.At year-end the Bell shares were only worth $2 per share.What amount can Barney deduct as a loss this year?

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 workers' 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 filing jointly.

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

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

Unemployment benefits are excluded from 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 transferred a castle worth $2,000,000 to Camilla in 2018 and will 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 in 2019?

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

Anna received $15,000 from life insurance paid upon the death of her grandmother.Anna can exclude the entire amount of the life insurance from her gross income.

Cyrus is a cash method taxpayer who reports on a calendar-year basis.Last year Cyrus received salary of $88,000 and at year-end his employer announced that Cyrus would receive an additional year-end bonus of $10,000 in cash and a new TV worth $2,000.Cyrus didn't receive his bonus check until January of this year and the TV didn't arrive until March of this year.Determine the amount Cyrus should include in his gross income for last year.

This year Ed celebrated his 25^th 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?

NeNe is an accountant and a U.S.citizen who has accepted a permanent position in Madrid,Spain,for a Spanish financial services company.This year,NeNe spent the entire year working in Madrid.NeNe's employer paid $40,000 of her Madrid housing expenses this year.What amount of the $40,000 housing payments may NeNe exclude?

Helen is a U.S.citizen and a CPA who moved to London,England,three years ago to work for a British company.This year,she spent the entire year in London and earned a salary of $110,000.How much of her salary will she be allowed to exclude from gross income in the United States?

Gross income includes all income realized during the year.

A taxpayer generally includes in gross income the amount of debt forgiven by a lender.

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?

This year Larry received the first payment from an annuity that promises to pay him $3,000 per month for the rest of his life.The IRS tables indicate that given Larry's age,he should expect to receive 310 monthly payments.The cost of the annuity to Larry was $620,000.How much of the first $3,000 payment should Larry include in gross income?

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?

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