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Exam 5: Gross Income and Exclusions

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Question 41

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

A) True
B) False

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Question 42

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

A) True
B) False

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Question 43

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Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g., no obligation to repay the amount) :

Capital loss carryovers for individuals are carried forward indefinitely.

Joyce's employer loaned her $50,000 this year (interest-free) to buy a new car.If the federal interest rate was 3 percent, which of the following is correct?

Which of the following refers to the date stock options are awarded to an employee?

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?

Both employers and employees may contribute to defined contribution plans.However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

Prizes and awards are generally taxable.

NeNe is an accountant and U.S.citizen who has accepted a permanent position in Madrid, Spain, for a Spanish financial services company.This year, NeNe spent the entire year working in Madrid.NeNe's employer paid $40,000 of her Madrid housing expenses this year.What amount of the $40,000 housing payments may NeNe exclude?

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?

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working, when the stock price was $6 per share.When the share price was $15 per share, she exercised all of her options.Eighteen months later she sold all of the shares for $20 per share.What is the amount of Maren's bargain element?

When the wash sale rules apply, the realized loss is:

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:

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:

The cash method of accounting requires taxpayers to recognize income only when that income is received as cash.

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 for $3,500.Finally, Henry restored a car for the football coach.The coach paid him with a pass to next year's football games.The pass is worth $750.Compute Henry's gross income assuming that he uses the cash basis of accounting.

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

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

Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives.Later this year Harold will recover the remainder of his cost of the annuity.Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?