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Exam 5: Gross Income and Exclusions

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Question 1

True/False

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Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.

A) True
B) False

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Question 2

Multiple Choice

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Identify which of the items below help determine which taxpayer must recognize earned income:

A) Residence in a community property law state.
B) Assignment of income.
C) Residence in a common law state.
D) All of the choices are correct.
E) Both A and C above.

F) A) and D)
G) C) and D)

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Question 3

Multiple Choice

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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?

Rental income generated by a partnership is reported by partners as dividend income.

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 (CD)for $4,050.The (CD)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.

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?

Regardless of when a divorce agreement is executed,alimony is included in gross income of the recipient and deductible for AGI by the payor.

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:

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.Which of the following is a true statement?

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,which 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 U.S.(rounded to the nearest one-hundred dollars) ?

Dave and Jane file a joint return.They sell a capital asset at a $150,000 loss.Even though they have no capital gains,$6,000 of the loss can still be deducted in the current year.

Riley participates in his employer's 401(k) plan.He retired in 2018 at age 75.When must Riley receive his distribution pertaining to 2018 to avoid minimum distribution penalties?

Irene's husband passed away this year.After his death,Irene received $250,000 of proceeds from life insurance on her husband,and she inherited her husband's stock portfolio worth $750,000.What amount must Irene include in her gross income?

Employees who are at least 50 years old at the end of the year are allowed to contribute more to their 401(k)accounts than employees who are not 50 years old by year end.

In X8,Erin had the following capital gains (losses) from the sale of her investments: $2,000 LTCG,$25,000 STCG,($9,000) LTCL,and ($15,000) STCL.What is the amount and nature of Erin's capital gains and losses?

Acme published a story about Paul and as a result Paul sued Acme for damage to his reputation,emotional distress,and punitive damages.Paul won an award of $20,000 for damages,$5,500 for emotional distress,and $50,000 for punitive damages.What amount must Paul include in his gross income?

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

Kathryn is employed by Acme and they have been very pleased with her performance this year.In December,Kathryn was granted an extra week off with pay (pay for the week totaled $2,000).In addition,Kathryn was given tickets to a football bowl game worth $800 (Kathryn didn't use the tickets - she hates football).At year-end Kathryn was allowed to order new office furniture and Acme told her to take the old office furniture home.The office furniture was originally purchased for $7,000,but it was fully depreciated and only worth about $1,000.Determine the amount Kathryn should include in her gross income.

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?

J.Z.(single taxpayer)is retired and received $10,000 of Social Security benefits this year.How much of the $10,000 Social Security benefits is taxable if his only other income was $28,000 of pension income?