Exam 5: Gross Income and Exclusions

To provide relief from double taxation, Congress allows a foreign-unearned income exclusion for interest and dividends earned in foreign countries.

Pam recently was sickened by eating spoiled peanut butter. She successfully sued the manufacturer for her medical bills ($4,560), her emotional distress ($6,000-she now fears peanut butter), and punitive damages ($61,500). What amount must Pam include in her gross income?

Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes)?

Identify the rule dictating that on sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale.

Aubrey and Justin file married filing separately. This year, Aubrey earned salary of $130,000, and Justin earned salary of $88,000. Aubrey and Justin live in a common law state. How much income earned will Justin report on his tax return for this year?

Janine's employer loaned her $5,000 this year (interest-free)to buy a used car. If the federal interest rate was 4 percent, which of the following is correct?

Samantha was ill for four months this year. Samantha missed work during this period, but disability insurance paid $18,000 of disability pay to replace her missed salary. Samantha shares the cost of the insurance with her employer. This year Samantha's employer paid $2,200 in disability premiums for Samantha as a nontaxable fringe benefit and Samantha paid the remaining $1,100 of premiums from her salary. What amount of the disability pay must Samantha include in her gross income (Rounded to the nearest whole dollar)?

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.

Jack and Jill are married. This year Jack earned $72,000, Jill earned $80,000, and they received $4,000 of interest income from a joint savings account. How much gross income would Jack report if he files married filing separately from Jill?

Hal Gore won a $1.45 million prize for special contributions to environmental research. This prize is awarded for public achievement, and Hal directed the awarding organization to transfer $505,000 of the award to the Environmental Protection Agency. How much of the prize should Hal include in his gross income?

Frank received the following benefits from his employer this year. What amount must Frank include in his gross income?

Community property laws dictate that income earned by one spouse is treated as though it were earned equally by both spouses.

Brad was disabled for part of the year, and he received $11,500 of benefits from a disability insurance policy purchased by his employer. Assume that Brad was not previously taxed on the disability insurance premiums paid by his employer. Brad must include all $11,500 of benefits in his gross income because he was not taxed on the disability insurance premiums paid by his employer.

Excluded income will never be subject to the federal income tax.

The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.

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

Cyrus is a cash method taxpayer who reports on a calendar-year basis. Last year Cyrus received salary of $88,000 and at year-end his employer announced that Cyrus would receive an additional year-end bonus of $10,000 in cash and a new TV worth $2,000. Cyrus didn't receive his bonus check until January of this year and the TV didn't arrive until March of this year. Determine the amount Cyrus should include in his gross income for last year.

Recognized income may be in the form of cash or property received (but not services received).

Hal Gore won a $1 million prize for special contributions to environmental research. This prize is awarded for public achievement, and Hal directed the awarding organization to transfer $400,000 of the award to the Environmental Protection Agency. How much of the prize should Hal include in his gross income?

Acme published a story about Paul, and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages. Paul won an award of $20,000 for damages, $5,500 for emotional distress, and $50,000 for punitive damages. What amount must Paul include in his gross income?