Exam 2: Gross Income and Exclusions

Curt's tax client Terry is employed at a large company that offers medical flexible spending accounts to its employees.Terry must decide at the beginning of the year whether he wants to put as much as $2,500 of his salary into the medical flexible spending account.Terry has excellent insurance through the company and is very healthy.He does not expect to have any medical expenses during the year.Terry does not itemize deductions.Should Curt recommend that Terry put the maximum in his medical flexible spending account? Why or why not?

Employer-provided spending accounts:

Which of the following is classified as nontaxable income?

For divorces after 1984,which of the following statements about alimony payments is not correct?

Robert works for American Motors.American Motors pays a $1,200 premium on Robert's health insurance in 2013.Robert has an operation on his big toe in 2013 that cost $7,200.The insurance company paid for $6,800 of it.Which one of the following is true?

William,a single taxpayer,works for the men's clothing division of a large corporation.During 2013,William received the following fringe benefits: value 20 percent discount on men's clothing (the usual markup is 40 percent) \3 50 15 percent discount on toys from the toy division of the company (the usual markup is 25 percent) \ 100 Personal copies on the company's copier \ 15 A subscription to Men's Cothing Weekly \ 35 Use of the comnany's athletic facilities \5 0 As a result of receiving the above fringe benefits,what amount must William include in his 2013 gross income?

The value of lodging provided to a professor to enable him to live near the campus is excluded from gross income.

All of the following amounts must be included in gross income,except:

Steve worked as a tech supervisor for a computer company.In September of 2013,he was laid off.He was paid unemployment compensation for the rest of the year totaling $7,000.Which of the following is true?

Payments made to a qualified retirement plan by an employer are considered part of the employee's investment in the contract for calculation of the annuity exclusion ratio.

Which of the following gifts or prizes would be considered taxable income to the person receiving the gift?

Group term life insurance premiums paid by an employer for insurance amounts less than $50,000 must be included in the employee's income.

To promote business activity,the tax rules generally are very liberal in treating business gifts as tax-free income to the recipient.

Joey is a single taxpayer.Joey's employer pays $1,800 per year for his health insurance.During the year,Joey had medical expenses of $2,500 and the insurance company reimbursed him for the full $2,500.How much of the above amounts,if any,must be included in Joey's gross income? Why?

If an employer claims a business deduction for group health insurance premiums paid on behalf of his employees,the amount must be included in the employees' gross income.

Mable is a wealthy widow who has come to you for tax advice.She is in the 35 percent tax bracket.She has a choice between investing in a high-quality municipal bond paying 3.5 percent or a high-quality corporate bond paying 7 percent.From a tax standpoint,which investment would you advise her to make and why?

Awards,bonuses,and gifts are all included in gross income.

In regards to Social Security benefits:

Peter is required by his divorce agreement to pay alimony of $6,000 a month and child support of $4,000 a month to his ex-wife Stella.What is the tax treatment of these two payments? To Peter? To Stella?

Tim receives $500 of qualified dividends from Exxon in 2013.He is in the 10 percent ordinary tax bracket.Tim's tax on the dividends will be: