Exam 4: Gross Income: Exclusions

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.

Daniel purchased qualified small business corporation stock for $200,000.In 2017 he sells the stock for $2,200,000,realizing a $2,000,000 gain.Determine the taxes due under the following independent situations (apply current tax rates,but ignore any additional Medicare taxes on investment income): (a) Daniel purchased the stock on February 1,2006. (b) Daniel purchased the stock on March 1,2009. (c) Daniel purchased the stock on October 1,2010.

Lindsay Corporation made the following payments to the family of Luke Marshall,an employee who died during the year. $5,000 for Luke's final paycheck that he failed to collect $10,000 for accrued vacation days as required by the employment contract $25,000 in admiration of Luke's outstanding service to the community What is the total amount that Luke's family must include in income?

"Working condition fringe benefits," such as memberships in professional organizations paid for by the employer,are generally excluded from the employee's gross income.

Rebecca is the beneficiary of a $500,000 insurance policy on her husband's life.She elects to receive $52,000 per year for 10 years rather than receive the entire amount in a lump sum.Of the amount received each year

A taxpayer may avoid tax on income by having the payment made to another taxpayer.

John,who is President and CEO of ZZZ Corporation which owns the ZZZ hotel chain,is working with his Human Resources department to design an employee fringe benefits package.He would like employees to receive discounts on goods and services provided by the corporation,would like to provide free hotel rooms to employees,would like to provide transit passes or pay for parking in metropolitan areas,and would like to provide recreational and athletic facilities.What issues should John consider in designing his package?

Many exclusions exist due to the benevolence of Congress or as a result of the government's attempts to encourage particular social behavior.

Adam purchased stock in 2006 for $100,000.He is considering selling it in 2017.It is currently worth $2,100,000 so he would realize a $2,000,000 gain.Adam is in the top tax bracket.Determine the taxes due under the following independent situations (ignore any additional Medicare taxes on investment income): (a) Adam sells the stock,and no special circumstances apply. (b) The stock is qualified small business corporation stock. (c) The stock is qualified small business corporation stock.Within 60 days Adam invests $2,500,000 in new qualifying small business corporation stock. (d) The stock is qualified small business corporation stock.Within 60 days Adam invests $2,000,000 in new qualifying small business corporation stock.

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.

Derrick was in an automobile accident while he was going to work.The doctor advised him to stay home for eight months due to his physical injuries.The resulting lawsuit was settled and Derrick received the following amounts: How much of the settlement must Derrick include in ordinary income on his tax return?

Mark,a cash-basis taxpayer,died on September 30,2017.His wife,Charlotte,provides you with the following information. From January 1,2017 until his death,Mark received a salary of $35,000.Charlotte received a salary of $68,000 during 2017.Mark had earned commissions of $20,000 which Charlotte received after his death.Charlotte was the beneficiary of a $100,000 whole life policy purchased by Mark and a $50,000 group term life insurance policy purchased by Mark's employer.The employer had paid premiums of $250 on Mark's behalf.In addition,the corporation paid Charlotte a $10,000 employee death benefit in Mark's name.All employees' families received similar benefits regardless of financial need.Mark and Charlotte had itemized deductions of $15,600.What is the amount of their taxable income on their 2017 tax return?

Linda was injured in an automobile accident caused by another driver.Her son,Matthew,was in the automobile but not physically injured.The other driver's insurance company was required by a court to pay Linda $75,000 to cover medical bills relating to her injuries,$30,000 to compensate her for emotional distress attributable to the injuries and $40,000 of punitive damages.Matthew was paid $15,000 to compensate him for emotional distress attributable to his witnessing his mother's injuries.What is the amount taxable to Linda?

Jillian has just accepted an offer from accounting firm for a full-time position after completion of her master's degree.In addition to paying a high salary and premiums on the basic health insurance policy,the firm will pay the benefits listed below.Which of the following benefits can be excluded (assume the benefits are provided on a non-discriminatory basis to all employees)?

Discuss the requirements for meals provided by employers to be excluded from their employees' income.How is the de minimis rule distinguished from these requirements?

After he was denied a promotion,Daniel sued his employer claiming sex discrimination.He was awarded $20,000 to cover medical bills he incurred because of the related emotional distress,$80,000 to punish his employer for discrimination,and $50,000 to compensate him for lost wages.What is the amount that must be included in Daniel's gross income for the year?

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

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?

Katie,a self-employed CPA,purchased an accident & disability insurance policy.As the result of an auto accident,Katie was unable to work and received $3,000 of disability benefits per month for seven months.The benefits were based on her estimated monthly income and should be reported as gross income.

Randy and Sharon are married and have two dependent children.Their 2017 tax and other related information is as follows: Compute Randy and Sharon's taxable income.(Show all calculations in good form.)