Exam 4: Gross Income: Concepts and Inclusions

Norma's income for 2019 is $27,000 from part-time work and $9,000 of Social Security benefits. Norma is not married. A portion of her Social Security benefits must be included in her gross income.

On January 2, 2019, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2019, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2019:

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Mike, a medical doctor, contracted with Kram Company, Mike's controlled corporation. The contract provided that Mike would work exclusively for the corporation. No other doctor worked for the corporation. The corporation contracted to perform an operation for Rosa for $8,000. The corporation paid Mike $6,500 to perform the operation under the terms of his employment contract.

For purposes of determining gross income, which of the following is true?

In the case of a person with other income of $300,000, 15% of his or her Social Security benefits received are excluded from gross income.

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2014, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2019, she sold the bond for $9,800, which included $200 of accrued interest.

Samantha and her son, Brent, are cash basis taxpayers. Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000. On the date of the gift, March 31, 2019, the accrued interest on the bond was $100. On December 31, 2019, Brent collected $400 interest on the bond. Brent must include in gross income the $300 interest earned after the date of the gift.

The annual increase in the cash surrender value of a life insurance policy:

Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2019. Copper Company is a publicly held company that has declared a $2.00 per share dividend on September 30th every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $2.00 per share dividend on September 30th, payable on October 15th, to stockholders of record as of October 10th. The daughter received the $2,000 dividend on October 18, 2019.

Ralph purchased his first Series EE bond during the year. He paid $709 for a 10-year bond with a $1,000 maturity value. The yield to maturity on the bonds was 3.5%. Ralph is not required to recognize the $291 ($1,000 - $709) original issue discount until the bond matures. However, Ralph can elect to amortize the discount over the 10-year period.

The taxable portion of Social Security benefits may be affected by:

Green, Inc., provides group term life insurance for all of its employees. The coverage equals twice the employee's annual salary. Sam, a vice president, worked all year for Green, Inc., and received $200,000 of coverage for the year at a cost to Green of $1,500. The Uniform Premiums (based on Sam's age) are $0.25 per month for $1,000 of protection. How much must Sam include in gross income this year?

A sole proprietor purchased an asset for $1,000 in 2019. Its value was $1,500 at the end of 2019. In 2020, the taxpayer sold the asset for $1,400. In 2020, the proprietor realized a taxable gain of $400 but an economic loss of $100.

On January 1, Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year.

Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation. Sarah is not an employee of the corporation.

The tax concept and economic concept of income are in agreement on which of the following:

In all community property states, the income from property that was inherited by a spouse after the marriage is treated as all earned by the spouse who inherited the property.

On November 1, 2019, Bob, a cash basis taxpayer, gave Dave common stock. On October 30, 2019, the corporation had declared the dividend payable to shareholders of record as of November 22, 2019. The dividend was paid on December 15, 2019. The corporation has paid the $1,200 dividend once each year for the past ten years, during which Bob owned the stock. When Dave collected the dividend on December 15, 2019:

Nicholas owned stock that decreased in value by $20,000 during the year, but he did not sell the stock. He earned $45,000 salary, but received only $34,000 because $11,000 in taxes were withheld. Nicholas saved $10,000 of his salary and used the remainder for personal living expenses. Nicholas's economic income for the year exceeded his gross income for tax purposes.