Exam 20: Gross Income: Exclusions

Exter Company is experiencing financial difficulties.It has assets worth $2 million,but owes liabilities of $2.1 million.It has a longstanding relationship with the bank.The bank has agreed to forgive $300,000 of debt principal.Because of this debt forgiveness,Exter will recognize income of

A nursing home maintains a cafeteria that is used by employees,patients,and visitors.The value of free meals provided to employees while on duty so that they may be available for emergency calls is not taxable.

Discuss briefly the options available for avoiding double taxation for the U.S.citizen earning income from sources outside the United States.

Fatima's employer funds child care for all employees' children.She pays nothing for this service.The cost of Fatima's child care is $7,200 a year.How much of the child care benefits are taxable to Fatima?

Tim earns a salary of $40,000.This year,Tim's employer establishes a cafeteria plan under which Tim signed a salary reduction of $2,500 for which $1,500 is to cover his health insurance premiums and $1,000 is transferred to a flexible spending account to reimburse medical expenses.During the year,he is reimbursed $900 for medical expenses.What is the total taxable to Tim this year?

Sumedha is the beneficiary of her mother's $500,000 life insurance policy.She receives $54,000 per year over ten years in settlement of her mother's policy.Sumedha will exclude the $54,000 proceeds received each year from the life insurance company.

This year,Jason sold some qualified small business stock that he acquired in 2008.His basis in the stock was $100,000 and he sold it for a $300,000 gain.How much of Jason's gain is taxable?

Carl filed his tax return,properly claiming the head of household filing status.Carl's employer paid or provided the following to Carl: How much of this income should Carl report (assume benefits are provided on a nondiscriminatory basis)?

The tax law encourages certain forms of fringe benefits by allowing employees to deduct the value of the benefit from gross income and allowing employers to exclude the cost.

Which of the following item(s)must be included in the income of the respective employees?

This year,Jonathan sold some qualified small business stock that he acquired in December 2010.His basis in the stock was $100,000 and he sold it for a $300,000 gain.How much of Jason's gain is taxable?

During the year,Cathy received the following: • Dividends of $4,000 from Lindsay Corporation.Cathy's father owns the stock and directed the corporation to send the dividends to Cathy. • A car worth $30,000 for being the 1,000^th customer at a car dealership. • $5,500 cash gift from her uncle. • $10,000 inheritance from her grandmother. What amount must Cathy include in gross income?

Benedict serves in the U.S.Congress.In the current year,a lobbyist paid for Benedict to take a one-week vacation to Bermuda.Benedict did not incur any expense for the trip.What income tax issues should Benedict consider?

Premiums paid by an employer for employee disability coverage are excluded from the employee's gross income.

Kelly was sent by her employer to work on a special assignment in Paris for six months.Kelly will be able to exclude some of her income earned in Paris.

An individual is considered terminally ill for purposes of the exclusion for accelerated death benefits if a physician certifies that he is reasonably likely to die within 36 months.

Faye is a marketing manager for Healthy Corp.She earns a salary of $100,000 and has received the following benefits: • Healthy pays 75% of all employees' health and accident insurance coverage.Healthy paid $6,000 towards the cost of Faye's health insurance during the year. • Faye participates in the cafeteria plan and had elected to have $2,000 withheld from her pay to cover the remaining cost of the health insurance premiums and an additional $1,500 to cover dental and other health care costs not paid by insurance (i.e.funding a flexible spending account).The full $1,500 was used to pay for various qualifying medical costs. • Healthy pays the cost of disability insurance coverage for all employees.The insurance will pay 75% of salary if employees are out of work for a significant period.The cost of Faye's premiums was $600. • Healthy pays for the cost of veterinary insurance for all employees.The cost of coverage for Faye's dog was $400. • Healthy pays for the cost of daycare for its employees' children.The cost for Faye's two children was $8,000. • All employees receive a 20% discount on Healthy's products.The typical markup on their products is 25%.Faye enjoyed $1,200 of savings through the discount program. • Faye won the manager of the year award earlier in the year and received an all-expense paid week at a desert spa valued at $3,500. • Healthy pays Faye's annual membership dues of $500 to the American Marketing Association. • Healthy paid for the full $2,500 cost of Faye's attendance at the American Marketing Association's annual conference in Orlando. How much income must Faye recognize from her employment?

Bret carries a $200,000 insurance policy on his life and has paid premiums of $10,000 over the years.Dividends on the policy have totaled $8,500.Each year Bret has left the dividends with the insurance company.In the current year,the insurance company credited $800 of interest on the accumulated dividends to Bret's account.In addition,$600 of dividends was added by the insurance company.In the current year,Bret must report income of

Miranda is not a key employee of AB Corporation.AB provides Miranda with group term life insurance coverage of $140,000.The premiums attributable to the excess coverage are $1,300.The uniform one-month group-term premium is one dollar per $1,000 of coverage.How much must Miranda include in income?

Mattie has group term life insurance coverage of $120,000 provided by her employer on a nondiscriminatory basis.She must include premiums for $120,000 of coverage in gross income,determined by using IRS tables.