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Exam 5: Gross Income and Exclusions

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Question 61

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Cyrus is a cash method taxpayer who reports on a calendar-year basis. Last year Cyrus received salary of $103,250 and at year-end his employer announced that Cyrus would receive an additional year-end bonus of $12,400 in cash and a new TV worth $2,700. 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.

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Question 62

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Which of the following statements about alimony payments is true for divorce agreements executed before 2019?

A) To qualify as alimony, payments must be made in cash.
B) Alimony payments are includible in the gross income of the recipient.
C) To qualify as alimony, payments cannot continue after the death of the recipient.
D) To qualify as alimony, payments must be made under a written agreement or divorce decree that does not designate the payments as "nonalimony" or child support.
E) All of the choices are correct.

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

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Question 63

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Frank received the following benefits from his employer this year. What amount must Frank include in his gross income?

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.

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

Unemployment benefits are excluded from gross income.

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

Charles and Camillagot 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 Camillain 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 2020?

Robert will be working overseas on a permanent assignment for an international company beginning on March 1 of this year (306 days this year). His salary is $11,000 per month while Robert is overseas, but only $9,200 per month otherwise. What is the minimum amount of Robert's salary that he must include in gross income this year? (Round your final answer to the nearest whole dollar amount and assume that there are 365 days in this year.)

Juan works as a landscaper for local businesses on weekends, and he often provides services in exchange for property. This year Juan provided lawn-mowing services in exchange for $1,275 of car repair services, $3,570 of groceries, and a certificate of deposit (CD)for $4,050. The CD matures next year with interest. Finally, Juan received a gift card that can only be applied for $850 of clothing at a local mall. Juan has only applied the gift card to purchase $100 of clothing. Compute Juan's gross income, assuming that he uses the cash basis of accounting.

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

Joyce's employer loaned her $50,000 this year (interest-free) to buy a new car. If the federal interest rate was 3 percent, which of the following is correct?

Samantha was ill for four months this year. Samantha missed work during this period, but disability insurance paid $18,000 of disability pay to replace her missed salary. Samantha shares the cost of the insurance with her employer. This year Samantha's employer paid $2,200 in disability premiums for Samantha as a nontaxable fringe benefit and Samantha paid the remaining $1,100 of premiums from her salary. What amount of the disability pay must Samantha include in her gross income (Rounded to the nearest whole dollar) ?

Hal Gore won a $1.75 million prize for special contributions to environmental research. This prize is awarded for public achievement, and Hal directed the awarding organization to transfer $605,000 of the award to the Environmental Protection Agency. How much of the prize should Hal include in his gross income?

Karl works at Moe's grocery. This year Karl was paid $43,000 in salary, but he was allowed to purchase his groceries at 10 percent below Moe's cost. This year Karl spent $3,600 to purchase groceries, costing Moe $4,000. The groceries were worth $6,000. What amount must Karl include in his gross income?

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?

The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.

Acme published a story about Paul, and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages. Paul won an award of $20,000 for damages, $5,500 for emotional distress, and $50,000 for punitive damages. What amount must Paul include in his gross income?

Kathryn is employed by Acme and they have been very pleased with her performance this year. In December Kathryn was granted an extra week off with pay (pay for the week totaled $2,000). In addition, Kathryn was given tickets to a football bowl game worth $800. (Kathryn didn't use the tickets-she hates football.)Right before year-end Kathryn was allowed to order new office furniture and Acme told her to take the old office furniture home. The office furniture was originally purchased for $7,000, but it was fully depreciated and only worth about $1,000. Determine the amount Kathryn should include in her gross income.

Andres has received the following benefits this year. Besides these benefits Andres missed work for two months due to an illness. During his illness Andres received $8,740 in sick pay from a disability insurance policy. Assume Andres has disability insurance provided by his employer as a nontaxable fringe benefit. What amount, if any, must Andres include in gross income this year?