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Exam 5: Gross Income and Exclusions

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Question 31

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Retired taxpayers over 59½ years of age at the end of the year must receive minimum distributions from defined contribution plans or they are subject to a penalty.

A) True
B) False

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Question 32

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Unemployment benefits are excluded from gross income.

A) True
B) False

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Question 33

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An employee may exclude up to a 40 percent employer-provided discount on services.

Samantha was ill for four months this year. Samantha missed work during this period, but disability insurance paid $18,000 of disability pay to replace her missed salary. Samantha shares the cost of the insurance with her employer. This year Samantha's employer paid $2,200 in disability premiums for Samantha as a nontaxable fringe benefit and Samantha paid the remaining $1,100 of premiums from her salary. What amount of the disability pay must Samantha include in her gross income? (rounded to the nearest whole dollar)

Wherewithal to pay represents the principle that a realized transaction should require a taxpayer to sell other assets in order to pay income taxes.

Suzanne received 20 ISOs (each option gives her the right to purchase 20 shares of stock for $12 per share) at the time she started working when the stock price was $13 per share. Three years later, when the share price was $23 per share, she exercised all of her options. If Suzanne holds the shares for two additional years and sells them when the market price is $30, how much gain will Suzanne recognize on the sale and how much tax will she pay assuming her marginal tax rate is 35 percent?

When stock options are exercised they are converted into actual employer stock.

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:

This year Kelsi received a $1,900 refund of state income taxes that she paid last year. Last year Kelsi claimed itemized deductions of $7,400 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 $6,300?

The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.

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

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?

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?

Andres has received the following benefits this year. $\begin{array} { | l | r | } \hline \text { Salary } & \$ 92,000 \\\hline \text { Contribution to qualified pension plan } & 10,200 \\\hline \text { Qualified health insurance premiums } & 8,400 \\\hline \text { Year-end bonus } & 15,000 \\\text { Group-term life insurance premiums (face } = \$ 40,000 \text { ) } & 1,750 \\\hline \text { Whole life insurance premiums (face } = \$ 100,000 \text { ) } & 2,420 \\\hline \text { Disability insurance premiums } & 1,800 \\\hline\end{array}$ Besides these benefits Andres missed work for two months due to an illness. During his illness Andres received $6,500 in sick pay from a disability insurance policy. Assume Andres has disability insurance provided by his employer as a nontaxable fringe benefit. What amount, if any, must Andres include in gross income this year?

When an employer matches an employee's contribution to the employee's 401(k) account, the employee is immediately taxed on the amount of the employer's matching contribution.

Kevin bought 200 shares of Intel stock on January 1, 2016 for $50 per share with a brokerage fee of $100. Then, Kevin sells all 200 shares for $75 per share on December 12, 2016. The brokerage fee on the sale was $150. What is the amount of the gain/loss Kevin must report on his 2016 tax return?

The tax law includes a complex set of restrictions called the anti-frontloading rules to make it difficult for taxpayers to disguise property payments as alimony payments.

Blake is a limited partner in Kling-On Partners. This year Kling-On reported that Blake's share of dividend income was $3,700 and his share of municipal interest was $2,750. Early this year Blake found a bundle of $100 bills in the alley outside his apartment. When no one claimed the money, the cash (a total of $2,400) was returned to Blake. Finally, Blake earned salary of $42,000 but almost $6,500 was withheld for income taxes and FICA tax. Compute Blake's realized income and gross income.

Shaun is a student who has received an academic scholarship to State University. The scholarship paid $14,000 for tuition, $2,500 for fees, and $1,000 for books. In addition, Shaun's dormitory fees of $8,500 were paid by the University when he agreed to counsel freshman on campus living. What amount must Shaun include in his gross 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.