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Exam 5: Gross Income and Exclusions

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Question 71

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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.

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$5,400 + $750 = $6,150
Gross i...

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Question 72

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

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B) False

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Question 73

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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 income earned will Justin report on his tax return for this year?

Caroline is retired and receives income from a number of sources.The interest payments are from bonds that Caroline purchased over past years and a disability insurance policy that Caroline purchased.Calculate Caroline's gross income.

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?

The tax law defines alimony to include transfers of property (but not cash)between former spouses.

Alex is 63 years old and retired.This year Alex won $212,200 in the state lottery.Alex also received $20,000 from an annuity he purchased eight years ago.He purchased the annuity,to be paid annually for 15 years,for $157,500.Alex received $10,000 in Social Security benefits for the year.Calculate Alex's gross income.

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

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

Blake is a limited partner in Kling-On Partners.This year Kling-On reported that Blake's share of dividend income was $3,700 and his share of municipal interest was $2,750.Early this year Blake found a bundle of $100 bills in the alley outside his apartment.When no one claimed the money,the cash (a total of $2,400)was returned to Blake.Finally,Blake earned salary of $42,000 but almost $6,500 was withheld for income taxes and FICA tax.Compute Blake's realized income and gross income.

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables,George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?