Exam 5: Gross Income and Exclusions

Caroline is retired and receives income from a number of sources. The interest payments are from bonds that Caroline purchased over past years and a disability insurance policy that Caroline purchased. Calculate Caroline's gross income.

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Unemployment benefits are excluded from gross income.

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 Ethan include in his gross income?

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

Nate is a partner in a partnership that received $5,000 of interest income this year. Nate's share of the interest is $1,000, and he should report this income on his individual return as:

This year Ed celebrated his 25ᵗʰ year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage). What amount (if any) is included in Barney's gross income this year?

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?

Charles and Camilla got divorced in 2018. Under the terms of the decree Charles  pays Camilla $50,000 in cash in each of the next five years (or until Camilla's death or remarriage). In addition, Charles will transfer a castle worth $2,000,000 to Camilla and pay $12,000 per year to support their son, Clyde, until he turns 19 years old. What amount (if any) is included in Camilla's gross income this year?

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?

Which of the following is not a necessary condition for income to be included in gross income?

Emily is a cash basis taxpayer, and she was an especially productive salesperson last year. In December of last year her supervisor told Emily she had earned a $5,000 bonus. However, Emily received the bonus check after year-end. Identify the principle that will determine when Emily is taxed on the bonus:

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

This year, Barney and Betty sold their home (sales price $750,000; cost $200,000). All closing costs were paid by the buyer. Barney and Betty owned and lived in their home for 18 months. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

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

A below-market loan (e.g., from an employer to an employee) is a common example of a transaction that generates taxable imputed income.

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?

Rental income generated by a partnership is reported by the partners as dividend income on their own individual tax returns.

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?