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Exam 5: Gross Income and Exclusions

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Question 21

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

A) The payment is included in gross income.
B) A portion of the payment is a return of capital.
C) The payment can only be taxed in the year after the annuity was purchased.
D) The payment is not taxed until the annuity payments cease altogether.
E) None of these are true statements.

F) C) and E)
G) A) and E)

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Question 22

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This year Henry realized a gain on the sale of an antique car that he inherited from his uncle. The buyer has promised to pay Henry in installment payments over the next few years. Identify the principle that will determine when Henry should be taxed on the gain from the sale.

A) Assignment of income
B) Constructive receipt
C) Return of capital principle
D) Wherewithal to pay
E) All of these choices are true.

F) A) and B)
G) B) and D)

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Question 23

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Bart, a single taxpayer, has recently retired. This year, he received $24,000 in pension payments and $5,000 of Social Security payments. What amount must Bart include in his gross income for the Social Security payments?

This year Mary received a $575 refund of state income taxes that she deducted on her tax return last year. Mary included a total of $7,250 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?

Vincent is a writer and a U.S. citizen. After being out of work for the first 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 July4^th to 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 $13,000 in itemized deductions last year (the standard deduction for a single filer was 12,200). 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.)

Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to pay Barney $56,600 per year for five years (or until Barney's death or remarriage) and $14,200 per year until their daughter, Pebbles, turns 19 years old. What amount (if any) is included in Barney's gross income in 2020?

Hank is a U.S. citizen and is doing a three to six-year assignment as a sales executive in Paris for a French company. The assignment began this year. Hank earned $109,500 working for the French company this year but only lived in France for 180 days (out of 365 days) . He will live full time in France next year. What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the United States (rounded to the nearest hundred dollars) ?

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

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.

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

This year Kelsi received a $1,900 refund of state income taxes that she paid last year. Last year Kelsi claimed itemized deductions of $13,300, including $2,800 of state income taxes. How much of the refund, if any, must Kelsi include in gross income if the standard deduction last year was $12,200?

Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to pay Barney $24,000 per year for five years (or until Barney's death or remarriage) and $10,000 per year until their daughter, Pebbles, turns 19 years old. What amount (if any) is included in Barney's gross incomein 2020?

This year Ed celebrated his 25 ^th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

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.

Excluded income will never be subject to the federal income tax.

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

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.

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

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?

Identify the item below that helps determine which taxpayer must recognize earned income.