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Exam 5: Gross Income and Exclusions

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Question 61

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

A) True
B) False

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Question 62

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For tax purposes, unearned income means income that has not yet been realized.

A) True
B) False

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Question 63

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

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

Hal Gore won a $1 million prize for special contributions to environmental research. This prize is awarded for public achievement, and Hal directed the awarding organization to transfer $400,000 of the award to the Environmental Protection Agency. How much of the prize should Hal include in his gross income?

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes).

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 Hal include in his gross income?

Aubrey and Justin divorced on June 30 of this year. Through June 30 Aubrey earned $62,000 of salary and Justin earned $45,000. For the year Aubrey reported a total salary of $130,000 and Justin earned a total salary of $88,000. Aubrey and Justin live in a community property state. How much of the income will Aubrey report on her tax return for this year?

The tax law includes a complex set of restrictions called the anti-frontloading rules to make it difficult for taxpayers to disguise property payments as alimony payments.

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?

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?

Jake sold his car for $2,400 in cash this year. He will realize a taxable gain of $1,000 if he purchased the car for $1,400.

Sam, age 45, saved diligently for his college education by putting part of his pay into U.S. Series EE saving bonds. Sam purchased the bonds for $6,500, and this year he redeemed the bonds for $7,200. He has no other income this year. What amount must Sam include in his gross income?

Terri and Mike are seeking a divorce. Terri and Mike own an art collection worth $357,000 that would belong to Terri. Mike offered to make annual payments of cash to Terri each year for five years if Terry allows Mike to take possession of the art collection. Mike insists however, that the annual payments must cease in the event of Terri's death. What amount of annual payment must Terri demand to make her indifferent after taxes between taking possession of the ($357,000) art versus collecting the cash payments? Assume that Terri has a marginal tax rate of 15 percent and Mike's tax rate is 35 percent and ignore the time value of money.

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

Hank is a U.S. citizen and is doing a three to six year assignment as a sales executive in Paris for a French company, which began this year. Hank earned $109,500 working for the French company this year but only lived in France for 340 days (out of 365 days) . What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the U.S. (rounded to the nearest one-hundred dollars) ?

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

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

Dora made a gift of stock to her granddaughter. At the time of the gift, the stock was worth $15,000. Several months after the gift, a $500 dividend was declared on the stock and paid to Dora's granddaughter. What amount must Dora's granddaughter include in her gross income?