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Exam 5: Gross Income and Exclusions

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Question 51

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Which of the following is not a necessary condition for income to be included in gross income?

A) income must be realized.
B) income must be paid in cash.
C) income cannot be excluded by law.
D) income must be made available to a taxpayer on the cash basis.
E) All of the choices are correct.

F) A) and C)
G) All of the above

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Question 52

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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.

A) True
B) False

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Question 53

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Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes) ?

Earnings from Internal Revenue Code Section 529 plans and Coverdell education savings accounts are excluded from gross income if the earnings are used to pay for qualifying educational expenditures for college students (and not for elementary or secondary education).

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

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

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?

Brad was disabled for part of the year and he received $11,500 of benefits from a disability insurance policy purchased by Brad's employer. Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year. Mary included a total of $4,000 of state income taxes when she itemized deductions last year. What amount of the refund, if any, should Mary include in her gross income this year?

This year, Fred and Wilma, married filing joint, sold their home (sales price $750,000; cost $200,000) . All closing costs were paid by the buyer. Fred and Wilma owned and lived in their home for 20 years. How much of the gain is included in gross income?

When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

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?

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

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?

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

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

Interest earned on a Federal Treasury bond is excluded from gross income (for federal tax purposes).

Vincent is a writer and U.S. citizen. After being out of work for the 1^st half of the year, Vincent moved permanently to Ireland on July 4. He worked for an Irish magazine and earned $110,000 in salary from July 4^th - December 31^st. Earlier in April of this year Vincent received a $1,500 refund of the $3,600 in state income taxes his previous employer withheld from his pay last year. Vincent claimed $7,150 in itemized deductions last year (the standard deduction for a single filer was 6,350). Vincent wants to elect to use the foreign-earned income exclusion to the extent he is eligible. Calculate Vincent's gross income for this year. (Round your final answer to the nearest whole dollar amount and assume there are 365 days in the year.)

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.

Barter clubs are an effective means of avoiding realization for tax purposes.