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Exam 5: Gross Income and Exclusions

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Question 51

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Which of the following best describes distributions from a defined benefit plan?

A) Distributions from defined benefit plans are fully taxable as ordinary income.
B) Distributions from defined benefit plans are partially taxable as ordinary income and partially nontaxable as a return of capital.
C) Distributions from defined benefit plans are fully taxable as capital gains.
D) Distributions from defined benefit plans are partially taxable as capital gains and partially nontaxable as a return of capital.

E) B) and C)
F) A) and D)

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Question 52

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When an employer matches an employee's contribution to the employee's 401(k)account, the employee is immediately taxed on the amount of the employer's matching contribution.

A) True
B) False

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Question 53

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Recognized income may be in the form of cash or property received (but not services received).

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car.If the federal interest rate was 4 percent, which of the following is correct?

A taxpayer who borrows money will include the amount borrowed in their gross income under the all-inclusive definition of income.

Cyrus is a cash-method taxpayer who reports on a calendar-year basis.Last year Cyrus received salary of $88,000 and at year-end his employer announced that Cyrus would receive an additional year-end bonus of $10,000 in cash and a new TV worth $2,000.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.

When a carpenter provides $100 of services in exchange for $100 of groceries, the carpenter has realized $100 of income.

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 per share) from his employer.At the time he started working the stock price was $11 per share.Now that the share price is $25 per share, he exercises all of the options.Two years later Bad Brad sells the stock for $27 per share.What is Bad Brad's basis in his stock for purposes of calculating the gain or loss?

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 Ethan include in his gross income?

A below-market loan (e.g., from an employer to an employee)is a common example of a transaction that generates taxable imputed income.

The assignment of income doctrine requires that to shift taxable income from property to another person, the taxpayer must transfer only the income to the other person.

The date on which stock options are given to the employee is called the exercise date.

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.)

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

Generally, long-term capital gains are taxed at:

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 and worth $6,000.What amount must Karl include in his gross income?

Simon was awarded a scholarship to attend State Law School from Gary Harris & Associates, Attorneys at Law.The scholarship pays Simon's tuition ($7,000 per semester), fees ($500 per semester), and a $4,500 per-semester stipend to pay for food and housing.In order to qualify for the stipend, Simon must work 10 hours per week at Gary Harris & Associates during the term.How much of the scholarship is Simon required to include in gross income?

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.

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 (Round final answer to the nearest whole dollar) ?

Brenda has $15,000 in U.S.Series EE savings 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?