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Exam 5: Gross Income and Exclusions

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Question 81

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Which of the following is a true statement about the first payment received from a purchased annuity?

A) The payment is included in gross income.
B) A portion of the payment is a return of capital.
C) The payment can only be taxed in the year after the annuity was purchased.
D) The payment is not taxed until the annuity payments cease altogether.
E) None of these are true statements.

F) None of the above
G) A) and B)

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Question 82

Multiple Choice

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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?

A) $2,050.
B) $350.
C) $180.
D) $170.
E) None of these - refunds of state income taxes are not included in gross income.

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

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Question 83

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

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

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.

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?

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?

Bobby and Sissy got married two and a half 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 Kelsi received a $1,900 refund of state income taxes that she paid last year. Last year Kelsi claimed itemized deductions of $13,300, 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 $12,200?

The all-inclusive definition of income means that gross income is defined very broadly.

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

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.