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Exam 5: Gross Income and Exclusions

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Question 61

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The receipt of prizes and awards is generally taxable.

A) True
B) False

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Question 62

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

A) True
B) False

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Question 63

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Vincent is a writer and U.S.citizen.After being out of work for the 1ˢᵗ 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 4ᵗʰ - December 31ˢᵗ.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 $7,100 in itemized deductions last year (the standard deduction for a single filer was 6,300).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.)

U.S.citizens generally are subject to tax on all income whether it is generated in the United States or in foreign countries.

Teresa was married on November 1 of this year and on that day received numerous gifts from her extended family.Her grandfather presented Teresa with a check for $15,000; her uncle gave Teresa 1,000 shares of Ford stock worth $10 per share (the uncle purchased the shares for $25 each); and her aunt presented Teresa with $50,000 of corporate bonds (Teresa received $1,500 of semiannual interest from the bonds on December 31 of this year).Finally,Teresa's parents paid off $50,000 of her student loans debt including $2,000 of accrued interest.What amount,if any,must Teresa include in gross income this 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.

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?

Dave is a plumber who uses the cash method of accounting.This year Dave requested that his clients make their checks payable to his son,Steve.This year Steve received checks in the amount of $62,000 for Dave's plumbing services.Which of the following is a true statement?

Juan works as a landscaper for local businesses on weekends,and he often provides services in exchange for property.This year Juan provided lawn-mowing services in exchange for $1,275 of car repair services,$3,570 of groceries,and a certificate of deposit (C.D.)for $4,050.The C.D.matures next year with interest.Finally,Juan received a gift card that can only be applied for $850 of clothing at a local mall.Juan has only applied the gift card to purchase $100 of clothing.Compute Juan's gross income assuming that he uses the cash basis of accounting.

Helen is a U.S.citizen and CPA,who moved to London,England three years ago to work for a British company.This year,she spent the entire year in London and earned a salary of $110,000.How much of her salary will she be allowed to exclude from gross income in the U.S.?

Loretta received $6,200 from a disability insurance policy that she purchased directly this year.Loretta must include all $6,200 in her gross income.

Emily is a cash basis taxpayer,and she was an especially productive salesperson last year.In December of last year her supervisor told Emily she had earned a $5,000 bonus.However,Emily received the bonus check after year end.Identify the principle that will determine when Emily is taxed on the bonus:

Barney and Betty got divorced this year.In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage) .What amount (if any) is included in Barney's gross income this year?

Fran purchased an annuity that provides $12,000 quarterly payments for the next 10 years.The annuity was purchased at a cost of $300,000.How much of the first quarterly payment will Fran include in her gross income?

Wilma has a $25,000 certificate of deposit (CD) at the local bank.The interest on this certificate,$1,000,was credited to her account this year but she must pay an early withdrawal penalty if she cashes in the CD before next year.Which of the following is a true statement?

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Ben's employer offers employees the following benefits.What amount must Ben include in his gross income?

To calculate a gain or loss on the sale of an asset,the proceeds from the sale are reduced by which of the following?

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?

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?