Exam 5: Gross Income and Exclusions

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 of the income will Aubrey report on her tax return for this year?

Barney and Betty got divorced this year. 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?

Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.

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

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?

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?

In April of this year Victoria received a $1,400 refund of state income taxes that she paid last year. Last year Victoria claimed itemized deductions of $8,690. Victoria's itemized deductions included state income taxes paid of $3,750. How much of the refund, if any, must Victoria include in gross income if the standard deduction last year was $6,100?

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?

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

Teresa was married on November 1 of this year and on that day received numerous gifts from her extended family. Her grandfather presented Teresa with a check for $15,000; her uncle gave Teresa 1,000 shares of Ford stock worth $10 per share (the uncle purchased the shares for $25 each); and her aunt presented Teresa with $50,000 of corporate bonds (Teresa received $1,500 of semiannual interest from the bonds on December 31 of this year). Finally, Teresa's parents paid off $50,000 of her student loans debt including $2,000 of accrued interest. What amount, if any, must Teresa include in gross income this year?

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 after her retirement. Calculate Caroline's gross income. Distributions from qualified pension plan \ 5,400 Interest on bonds issued by City of Austin, Texas 2,500 Social Security benefits 8,200 Interest on U.S. Treasury Bills 2,300 Interest on bonds issued by Ford Motor Company 1,900 Interest on bonds issued by City of Quebec, Canada 2,750 Disability insurance benefits 9,500

Jack and Jill are married. This year Jack earned $72,000 and 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-separate from Jill?

This year Barney purchased 500 shares of Bell common stock for $20 per share. At year-end the Bell shares were only worth $2 per share. What amount can Barney deduct as a loss this year?

Terri and Mike are seeking a divorce. Terri and Mike own an art collection worth $357,000 that would belong to Terri. Mike offered to make annual payments of cash to Terri each year for five years if Terry allows Mike to take possession of the art collection. Mike insists however, that the annual payments must cease in the event of Terri's death. What amount of annual payment must Terri demand to make her indifferent after taxes between taking possession of the ($357,000) art versus collecting the cash payments? Assume that Terri has a marginal tax rate of 15 percent and Mike's tax rate is 35 percent and ignore the time value of money.

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

This fall Angelina, age 35, plans to attend college. To fund her tuition she cashed in Series EE savings bonds with a redemption value of $24,000 and an original cost of $16,800. Angelina plans on spending $7,200 of the proceeds to pay tuition. The redemption proceeds are Angelina's only source of income. What amount of interest must Angelina include in gross income this year?

Wilma has a $25,000 certificate of deposit (CD) at the local bank. The interest on this certificate, $1,000, was credited to her account this year but she must pay an early withdrawal penalty if she cashes in the CD before next year. Which of the following is a true statement?

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

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

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