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.

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.

Henry works part-time on auto repairs and restoration projects.This year Henry was paid $5,400 for repairs he made to his neighbor's auto.Henry's neighbor promised to pay Henry another $2,200 in cash next year.Henry's brother borrowed $4,100 in cash in December of this year and gave him a negotiable promissory note for $4,300 due in three months with interest.Henry sold the note in January of next year for $3,500.Finally,Henry restored a car for the football coach.The coach paid him this year with a pass to next year's football games.The pass is worth $750.Compute Henry's gross income for this tax year assuming that he uses the cash basis of accounting.

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables,George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

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

Opal deducted $2,400 of state income taxes on her tax return last year.This year she received a state income tax refund of $170.What amount of the refund,if any,should Opal include in her gross income if last year her total itemized deductions exceeded the standard deduction by $350?

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,and Justin 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?

Gambling winnings are included in gross income only to the extent that the winnings exceed gambling losses incurred during the same period.

Alex is 63 years old and retired.This year Alex won $212,200 in the state lottery.Alex also received $20,000 from an annuity he purchased eight years ago.He purchased the annuity,to be paid annually for 15 years,for $157,500.Alex received $10,000 in Social Security benefits for the year.Calculate Alex's gross income.

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