Exam 5: Gross Income and Exclusions

Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son, Steve. This year Steve receivedchecks in the amount of $62,000 for Dave's plumbing services. Which of the following is a true statement?

Hank is a U.S. citizen and is doing a three to six-year assignment as a sales executive in Paris for a French company, which began this year. Hank earned $109,500 working for the French company this year but only lived in France for 180 days (out of 365 days). He will live full-time in France next year. What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the U.S? (Round your answer to the nearest one-hundred dollars).

This year Joseph joined the board of directors. Besides his director's fees, Joseph received the following employee benefits: The stock bonus consisted of 5,000 shares of Bell stock given to Joseph as compensation. At thetime of the transfer the stock was listed at $4 per share. What amounts, if any, should Joseph include in gross income this year?

This year, Fred and Wilma, married filing joint, 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?

Aubrey and Justin divorced on June 30 of this year. Through June 30 Aubrey earned $62,000 of salary, and Justin earned $45,000. For the year Aubrey reported a total salary of $130,000, andJustin earned a total salary of $88,000. Aubrey and Justin live in a community property state. How much income earned will Justin report on his tax return for this year?

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant. Ethan indicated that he would transfer the prize to the local hospital. How much of the prize should Hal include in his gross income?

Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes).

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

Terri and Mike are seeking a divorce. Terri and Mike own an art collection worth $357,000 that would belong to Terri. Mike offered to make annual payments of cash to Terri each year for five years if Terry allows Mike to take possession of the art collection. Mike insists however, that the annual payments must cease in the event of Terri's death. What amount of annual payment must Terri demand to make her indifferent after taxes between taking possession of the ($357,000) art versus collecting the cash payments? Assume that Terri has a marginal tax rate of 15 percent and Mike's tax rate is 35 percent and ignore the time value of money.

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?

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g., noobligation to repay the amount):