Exam 5: Gross Income and Exclusions

NeNe is an accountant and U.S. citizen, who has accepted a permanent position in Madrid, Spain for a Spanish financial services company. This year, NeNe spent the entire year working in Madrid. NeNe's employer paid $40,000 of her Madrid housing expenses this year. What amount of the $40,000 housing payments may NeNe exclude?

Constructive receipt represents the principle that cash basis taxpayers will be taxed on income when it is made available to them without substantial restrictions.

Gross income includes all income realized during the year.

Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives. Later this year Harold will recover the remainder of his cost of the annuity. Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?

This year Zach was injured in an auto accident. As a result, he received the following payme1n0t2s).Zach received $18,000 of disability pay. Zach has disability insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $4,300 in disability premiums for Zach thisyear.Zach's hospital bills totaled $4,500 and were paid by his health insurance. Zach has healthinsurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $6,250 in health insurance premiums for Zach this year.What amount must Zach include in his gross income?

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.

Jake sold his car for $2,400 in cash this year. He will realize a taxable gain of $1,000 if he purchased the car for $1,400.

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 corporatebonds 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 withgambling winnings of $1,200. Collin was injured in an accident at the salon. He was unable to workfor 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 forthis year assuming they will file married joint.

Unemployment benefits are excluded from gross income.

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

Brenda has $15,000 in U.S. Series EE saving bonds and she is considering whether to cash in the bonds. Under what conditions can Brenda exclude the interest on the savings bonds from her gross income?

The cash method of accounting requires taxpayers to recognize income only whenincome is received as cash.

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

Andres has received the following benefits this year. 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, mustAndres include in gross income this year?

Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the race track, but he lost $700 on his various wagers. What amount must Rhett include in his grossincome?

The tax law defines alimony to include transfers of property (but not cash) between former spouses.

Bart, a single taxpayer, has recently retired. This year, he received $24,000 in pension payments and $5,000 of social security payments. What amount must Bart include in his gross income for the social security payments?

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?

Bobby and Sissy got married 2.5 years ago. Since that time, they have lived in Bobby's home. Sissy sold her previous home three years ago and excluded her entire gain ($80,000) at that time. Bobby and Sissy decided to move to a bigger home this year. As a result, they sold Bobby's home for$500,000 (original cost $150,000). How much of the gain from the sale is taxable?

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). Just right before year-end Kathryn was allowed to order new officefurniture 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 theamount Kathryn should include in her gross income