Exam 5: Gross Income and Exclusions

Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the race track, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?

Karl works at Moe's grocery. This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost. This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000. What amount must Karl include in his gross income?

Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son, Steve. This year Steve received checks in the amount of $62,000 for Dave's plumbing services. Which of the following is a true statement?

Samantha was ill for four months this year. Samantha missed work during this period, but disability insurance paid $18,000 of disability pay to replace her missed salary. Samantha shares the cost of the insurance with her employer. This year Samantha's employer paid $2,200 in disability premiums for Samantha as a nontaxable fringe benefit and Samantha paid the remaining $1,100 of premiums from her salary. What amount of the disability pay must Samantha include in her gross income (rounded to the nearest whole dollar)?

Which of the following is a true statement about the first payment received from a purchased annuity?

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

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

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?

Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale:

When an asset is sold, the taxpayer calculates the gain or loss by subtracting the tax basis of the asset from the proceeds of the sale.

Anna received $15,000 from life insurance paid upon the death of her grandmother. Anna can exclude the entire amount of the life insurance from her gross income.