Question 1

Which of the following is true regarding stock options?

Accepted Answer

A) A loss is realized when stock options lapse. 
B) There is typically no tax effect on the grant date. 
C) Income recognized on the exercise date is greater for incentive stock options than nonqualified options. 
D) The bargain element on a nonqualified option is taxed to employees at capital gain rates. 
A) A loss is realized when stock options lapse. 
B) There is typically no tax effect on the grant date. 
C) Income recognized on the exercise date is greater for incentive stock options than nonqualified options. 
D) The bargain element on a nonqualified option is taxed to employees at capital gain rates.

Question 2

Generally,85 percent of Social Security benefits are included in income of high income taxpayers.

Accepted Answer

A) True 
 B)False

Question 3

This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year.Mary included a total of $4,000 of state income taxes when she itemized deductions last year.What amount of the refund,if any,should Mary include in her gross income this year?

Accepted Answer

A) $200 is included because Mary itemized her deductions last year. 
B) $200 is included if itemized deductions exceeded the standard deduction by $200. 
C) $200 is included because itemized deductions exceeded the standard deduction. 
D) $200 is included even if Mary claimed the standard deduction. 
E) None of the choices are correct - refunds of state income taxes are not included in gross income. 
A) $200 is included because Mary itemized her deductions last year. 
B) $200 is included if itemized deductions exceeded the standard deduction by $200. 
C) $200 is included because itemized deductions exceeded the standard deduction. 
D) $200 is included even if Mary claimed the standard deduction. 
E) None of the choices are correct - refunds of state income taxes are not included in gross income.

Question 4

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?

Accepted Answer

A) $80 
B) $72 
C) $48 
D) $32 
E) None of the choices are true 
A) $80 
B) $72 
C) $48 
D) $32 
E) None of the choices are true

Question 5

The date on which stock options are given to the employee is called the exercise date.

Accepted Answer

A) True 
 B)False

Question 6

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g.,no obligation to repay the amount):

Accepted Answer

A) Claim of right 
B) Constructive receipt 
C) Return of capital principle 
D) Wherewithal to pay 
E) None of the choices are true 
A) Claim of right 
B) Constructive receipt 
C) Return of capital principle 
D) Wherewithal to pay 
E) None of the choices are true

Question 7

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.

Accepted Answer

$230,200 = $212,200 + $9,500 + $8,500 Th

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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?

Accepted Answer

A) $400,000 
B) $600,000 
C) $1 million 
D) None of the choices because all prizes are excludible 
E) None of the choices because prizes from charities are excludible 
A) $400,000 
B) $600,000 
C) $1 million 
D) None of the choices because all prizes are excludible 
E) None of the choices because prizes from charities are excludible

Question 10

Qualified retirement plans include defined benefit plans but not defined contribution plans.

Accepted Answer

A) True 
 B)False

Question 11

When selling stocks,which method of calculating basis provides the greatest opportunity for minimizing gains or increasing losses?

Accepted Answer

A) LIFO 
B) FIFO 
C) Weighted average 
D) Specific identification 
E) None of the choices are correct 
A) LIFO 
B) FIFO 
C) Weighted average 
D) Specific identification 
E) None of the choices are correct

Question 12

A portion of each payment from a purchased annuity represents income.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements regarding contributions to defined contribution plans is true?

Accepted Answer

A) Employer contributions to a defined contribution plan are not limited by the tax law. 
B) Employee contributions to a defined contribution plan are not limited by the tax law. 
C) An employee who is at least 60 years of age as of the end of the year may contribute more to a defined contribution plan than an employee who has not reached age 60 by year end. 
D) The tax laws limit the sum of the employer and employee contributions to a defined contribution plan. 
A) Employer contributions to a defined contribution plan are not limited by the tax law. 
B) Employee contributions to a defined contribution plan are not limited by the tax law. 
C) An employee who is at least 60 years of age as of the end of the year may contribute more to a defined contribution plan than an employee who has not reached age 60 by year end. 
D) The tax laws limit the sum of the employer and employee contributions to a defined contribution plan.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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.How much gain will Maren recognize on the sale and how much tax will she pay assuming her marginal tax rate is 35 percent?

Accepted Answer

A) $0 gain and $0 tax. 
B) $500 gain and $75 tax. 
C) $500 gain and $175 tax. 
D) $1,200 gain and $180 tax. 
A) $0 gain and $0 tax. 
B) $500 gain and $75 tax. 
C) $500 gain and $175 tax. 
D) $1,200 gain and $180 tax.

Question 16

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.How much of the gain is included in gross income?

Accepted Answer

A) $550,000 
B) $300,000 
C) $250,000 
D) $50,000 
E) None of the choices are correct 
A) $550,000 
B) $300,000 
C) $250,000 
D) $50,000 
E) None of the choices are correct

Question 17

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

Accepted Answer

A) Tax refund rule 
B) Constructive receipt 
C) Return of capital principle 
D) Tax benefit rule 
E) None of the choices are true 
A) Tax refund rule 
B) Constructive receipt 
C) Return of capital principle 
D) Tax benefit rule 
E) None of the choices are true

Question 18

Wherewithal to pay represents the principle that a realized transaction should require a taxpayer to sell other assets in order to pay income taxes.

Accepted Answer

A) True 
 B)False

Question 19

Both employers and employees may contribute to defined contribution plans.However,the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

Accepted Answer

A) True 
 B)False

Question 20

The all-inclusive definition of income means that gross income is defined very broadly.

Accepted Answer

A) True 
 B)False

Which of the following is true regarding stock options?

Generally,85 percent of Social Security benefits are included in income of high income taxpayers.

This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year.Mary included a total of $4,000 of state income taxes when she itemized deductions last year.What amount of the refund,if any,should Mary include in her gross income this 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 date on which stock options are given to the employee is called the exercise date.

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g.,no obligation to repay the amount):

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

Qualified retirement plans include defined benefit plans but not defined contribution plans.

When selling stocks,which method of calculating basis provides the greatest opportunity for minimizing gains or increasing losses?

A portion of each payment from a purchased annuity represents income.

Which of the following statements regarding contributions to defined contribution plans is true?

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

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.How much of the gain is included in gross income?

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

Wherewithal to pay represents the principle that a realized transaction should require a taxpayer to sell other assets in order to pay income taxes.

Both employers and employees may contribute to defined contribution plans.However,the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

The all-inclusive definition of income means that gross income is defined very broadly.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview dependents and Filing Status

Individual for Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Individual From Agi Deductions

Filters

Exam 5: Gross Income and Exclusions

Which of the following is true regarding stock options?

Generally,85 percent of Social Security benefits are included in income of high income taxpayers.

This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year.Mary included a total of $4,000 of state income taxes when she itemized deductions last year.What amount of the refund,if any,should Mary include in her gross income this 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 date on which stock options are given to the employee is called the exercise date.

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g.,no obligation to repay the amount):

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

Qualified retirement plans include defined benefit plans but not defined contribution plans.

When selling stocks,which method of calculating basis provides the greatest opportunity for minimizing gains or increasing losses?

A portion of each payment from a purchased annuity represents income.

Which of the following statements regarding contributions to defined contribution plans is true?

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

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.How much of the gain is included in gross income?

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

Wherewithal to pay represents the principle that a realized transaction should require a taxpayer to sell other assets in order to pay income taxes.

Both employers and employees may contribute to defined contribution plans.However,the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

The all-inclusive definition of income means that gross income is defined very broadly.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview dependents and Filing Status

Individual for Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Individual From Agi Deductions

Filters