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Exam 5: Gross Income and Exclusions

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Question 1

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Which of the following best describes distributions from a traditional defined contribution plan?

A) Distributions from defined contribution plans are fully taxable as ordinary income.
B) Distributions from defined contribution plans are partially taxable as ordinary income and partially nontaxable as a return of capital.
C) Distributions from defined contribution plans are fully taxable as capital gains.
D) Distributions from defined contribution plans are partially taxable as capital gains and partially nontaxable as a return of capital.

E) A) and B)
F) A) and C)

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Question 2

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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 above
E) Both A and C above

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

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Question 3

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Kevin provided services to several clients this year who paid with different types of property. Which of the following payments is not included in Kevin's gross income?

Barter clubs are an effective means of avoiding realization for tax purposes.

Distributions from defined benefit plans are taxed as long-term capital gains to beneficiaries.

When a carpenter provides $100 of services in exchange for $100 of groceries, the carpenter has realized $100 of income.

In April of this year Victoria received a $1,400 refund of state income taxes that she paid last year. Last year Victoria claimed itemized deductions of $8,890. Victoria's itemized deductions included state income taxes paid of $3,750. How much of the refund, if any, must Victoria include in gross income if the standard deduction last year was $6,300?

Taxpayers withdrawing funds from an IRA before they turn 70½ are generally subject to a 10 percent penalty on the amount of the withdrawal.

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

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:

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?

Frank received the following benefits from his employer this year. What amount must Frank include in his gross income? $\begin{array} { | l | r | } \hline \text { Benefits Received } & \text { Amount } \\\hline \text { Salary } & \$ 54,450 \\\hline \text { Health insurance } & 2,900 \\\hline \text { Group term life insurance } ( \$ 50,000 ) & 1,800 \\\hline\end{array}$

Lisa and Collin are married. Lisa works as an engineer and earns a salary of $116,000. Collin works at a beauty salon and reported wages of $45,000. Lisa received $500 of interest from corporate bonds and $250 of interest from a municipal bond. Lisa acquired these bonds prior to her marriage to Collin. Collin's father passed away on April 14. He inherited cash of $50,000 and his baseball card collection, valued at $2,000. As beneficiary of his father's life insurance policy, Collin also received $150,000. The couple spent a weekend in Atlantic City in November and came home with gambling winnings of $1,200. Collin was injured in an accident at the salon. He was unable to work for a month, but during this time he received $5,000 from disability insurance he purchased several years ago. Collin also received $2,000 in workman's compensation, and $1,500 from the salon for the emotional trauma he suffered from the accident. Calculate Lisa and Collin's gross income for this year assuming they will file married joint.

This year Barney purchased 500 shares of Bell common stock for $20 per share. At year-end the Bell shares were only worth $2 per share. What amount can Barney deduct as a loss this year?

This fall Angelina, age 35, plans to attend college. To fund her tuition she cashed in Series EE savings bonds with a redemption value of $24,000 and an original cost of $16,800. Angelina plans on spending $7,200 of the proceeds to pay tuition. The redemption proceeds are Angelina's only source of income. What amount of interest must Angelina include in gross income this year?

This year, Fred and Wilma sold their home (sales price $750,000; cost $200,000) . All closing costs were paid by the buyer. Fred and Wilma owned and lived in their home for 20 years. How much of the gain is included in gross income?

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.

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

Sally is a cash basis taxpayer and a member of the Valley Barter club. This year Sally provided 100 hours of sewing services to the barter club in exchange for two football playoff tickets. Which of the following is a true statement?

Recognized income may be in the form of cash or property received (but not services received).