Exam 5: Gross Income and Exclusions

Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will (or can)contribute to an employee's plan.

A taxpayer generally includes in gross income the amount of debt forgiven by a lender.

Prizes and awards are generally taxable.

Simon was awarded a scholarship to attend State Law School from Gary Harris & Associates,Attorneys at Law.The scholarship pays Simon's tuition ($7,000 per semester),fees ($500 per semester),and a $4,500 per semester stipend to pay for food and housing.In order to qualify for the stipend,Simon must work 10 hours per week at Gary Harris & Associates during the term.How much of the scholarship is Simon required to include in gross income?

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

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 community property state.How much income earned will Justin report on his tax return for this year?

A taxpayer who borrows money will include the amount borrowed in their gross income under the all-inclusive definition of income.

For tax purposes,unearned income means income that has not yet been realized.

Robert will be working overseas on a permanent assignment for an international company beginning on March 1 of this year (306 days this year).His salary is $11,000 per month while Robert is overseas,but only $9,200 per month otherwise.What is the minimum amount of Robert's salary that he must include in gross income this year? (Round your final answer to the nearest whole dollar amount & assume that there are 365 days in this year)

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

Gross income includes:

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?

Bobby and Sissy got married 2.5 years ago.Since that time,they have lived in Bobby's home.Sissy sold her previous home three years ago and excluded her entire gain ($80,000)at that time.Bobby and Sissy decided to move to a bigger home this year.As a result,they sold Bobby's home for $500,000 (original cost $150,000).How much of the gain from the sale is taxable?

Which of the following best describes distributions from a defined benefit plan?

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share)at the time she started working when the stock price was $6 per share.When the share price was $15 per share,she exercised all of her options.Eighteen months later she sold all of the shares for $20 per share.What is the amount of Maren's bargain element?

When stock options are exercised they are converted into actual employer stock.

When an employer matches an employee's contribution to the employee's 401(k)account,the employee is immediately taxed on the amount of the employer's matching contribution.

Riley participates in his employer's 401(k)plan.He turns 70 years of age on February 15,2018 and he plans on retiring on July 1,2020.When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Capital loss carryovers for individuals are carried forward indefinitely.

Hazel received 20 NQOs (each option gives her the right to purchase 10 shares of stock for $7 per share)at the time she started working when the stock price was $14 per share.Now that the share price is $20 per share,she exercises all of her options.If Hazel holds the shares for two years and sells them when the market price is $25,how much gain will Hazel recognize on the sale and how much tax will she pay assuming her marginal tax rate is 24 percent and long term capital gain tax rate is 15 percent?