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Exam 5: Gross Income and Exclusions

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Question 51

True/False

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

A) True
B) False

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Question 52

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Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale:

A) Tax benefit rule.
B) Constructive receipt.
C) Return of capital principle.
D) Wherewithal to pay.
E) None of the choices are correct.

F) A) and B)
G) A) and C)

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Question 53

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In January of the current year,Dora made a gift of stock to her granddaughter.At the time of the gift,the stock was worth $15,000.Several months later in the same year 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 for the current year?

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 $6,500 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?

Jack and Jill are married.This year Jack earned $72,000 and Jill earned $80,000 and they received $4,000 of interest income from a joint savings account.How much gross income would Jack report if he files married-filing-separate from Jill?

A portion of each payment received from a purchased annuity contract represents income.

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

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

Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the income.

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

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% 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?

Hillary is a cash-basis calendar-year taxpayer.During the last week of December she received a letter containing a $5,000 check for services rendered.Which of the following is a true statement?

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?

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

Trevor received a gift of $25,000 in cash from his rich uncle.Trevor must include $15,000 of this gift in his gross income this year.

Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years.Charles paid $180,000 for the annuity.How much of the first $20,000 payment should Charles include in gross income?

The all-inclusive definition of income means that gross income is defined very broadly.

A taxpayer generally includes in gross income the amount of debt forgiven by a lender.

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?

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