Exam 5: Gross Income and Exclusions

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.

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

Hazel received 20 NQOs (each option gives her the right to purchase 10 shares of stock for $7 per share)at the time she started working, when the stock price was $14 per share.Now that the share price is $20 per share, she exercises all of her options.How much income will Hazel recognize on the exercise date and how much tax will she pay assuming her marginal tax rate is 25 percent?

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

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.

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

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

Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the income.

Frank received the following benefits from his employer this year.What amount must Frank include in his gross income? Benefits Received Amount Salary \5 4,450 Health insurance 2,900 Group-term life insurance (\ 50,000) 1,800

Deb has found it very difficult to repay her loans.Because of these difficulties, the bank decided to forgive one of her most recent loans, an amount of $45,000.After the loan was discharged, Deb had total assets of $232,000 and her remaining loans total $217,000.What amount must Deb include in her gross income?

Gross income includes:

Ophra is a cash-basis taxpayer who is employed in the publishing industry.This year her employer informed her that because of her outstanding performance she is entitled to a free world cruise.Ophra asked her employer to issue the cruise tickets to her parents, and he complied with this request.Identify the principle that will determine whether Ophra or her parents are taxed on the value of the cruise tickets:

Ms.Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15, 2011.On December 31, 2019, she sold all 1,000 shares of her Ibis stock for $4,500.Based on a hot tip from her friend, she bought 1,000 shares of Ibis stock on January 23, 2020, for $3,000.What is Ms.Fresh's recognized loss on her 2019 sale and what is her basis in her 1,000 shares purchased in 2020?

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 workers' 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 filing jointly.

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.

Kathryn is employed by Acme and the company has 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.

Shauna received a $100,000 distribution from her 401(k)account this year.Assuming Shauna's marginal tax rate is 25 percent, what is the total amount of tax and penalty Shauna will be required to pay if she receives the distribution on her 59^th birthday and she has not yet retired?

Riley participates in his employer's 401(k)plan.He retired in 2019 at age 75.When must Riley receive his 2019 distribution to avoid minimum distribution penalties?

Mr.and Mrs.Smith purchased 100 shares of stock for $45 per share on June 30, 2011.On March 30, 2019, the Smith family decides to sell these shares for $30, generating a loss of $15 per share.On April 15, 2019, the Smith family realized they made a mistake and repurchased 100 shares for $35 per share.Can the Smith family deduct a long-term or short-term capital loss from the sale on March 30, 2019? If not, will the Smiths ever receive a tax benefit for their loss?

Unemployment benefits are excluded from gross income.