Exam 3: Gross Income: Inclusions

Ellen,a CPA,prepares a tax return for Frank,a plumber,in exchange for installing a new sink.Since no cash changed hands,neither taxpayer is required to report any income.

Edward is considering returning to work part-time to supplement his pension and Social Security benefits.His current marginal tax rate is 15%.What should he consider from a tax perspective before returning to work?

Rocky owns The Palms Apartments.During the year,Molly Ann,a tenant,moved to another state.Molly Ann paid Rocky $1,500 to cancel the two-year lease she had signed.Rocky then rented the apartment to Elvis who paid the first and last months' rents of $500 each and a security deposit of $800.Rocky also owns a building used as a dance club.The owner of the club requested that Rocky add on another room to be used for private parties.Rocky refused but allowed the club owner to make the addition at a cost of $20,000.What amount should be included in Rocky's income with regard to these items?

Examples of income which are constructively received include all of the following except

A key factor in determining tax treatment of distributions from qualified retirement plans is whether the employee made pre-tax or after-tax contributions.

Frasier and Marcella,husband and wife,file separate returns.Frasier and Marcella live in a community property state that considers separate property income to be separate.Frasier's salary is $42,000 and Marcella's salary is $46,000.Marcella receives dividend income of $4,000 from stock inherited from her parents.Frasier receives interest income of $1,000 from bonds purchased with his salary after marriage.Frasier and Marcella receive $3,200 dividend income from stock they purchased jointly.Marcella's income would be

Social Security benefits are excluded from taxation for all taxpayers.

A check received after banking hours is considered constructively received by the payee even though the check cannot be converted to cash.

Aaron found a prototype of a new pair of glasses with Internet service and other computing capabilities while in a bar one evening.He offered the prototype to the owner of a magazine and blog that reviews new digital devices.The owner paid Aaron $10,000 in return for the prototype.What tax issues should Aaron consider?

As a result of a divorce,Michael pays Judy $75,000 in year one and $25,000 per year in subsequent years.How much of the $75,000 in year one is properly characterized as alimony and will not be recaptured later?

Which one of the following items is not considered gross income for tax purposes?

Leigh inherited $65,000 of City of New York bonds in January 2017.In March 2017,she received $4,000 of interest on the bonds.In July 2017,she sold the bonds at a $10,000 gain.Leigh also redeemed Series E U.S.Savings bonds in October 2017 that she had purchased several years ago and received accumulated interest of $2,600.In December 2017,she received $800 of interest on City of Paris,France,bonds.What amount,if any,of gross income must Leigh report?

Ms.Walter,age 70,is thinking about going back to work part-time.She knows that the wages may affect the taxability of her Social Security benefits.What is the maximum percentage of Social Security benefits that could become taxable?

Todd and Hillary,husband and wife,file separate returns.Todd and Hillary live in a community property state that considers separate property income to be community income.Todd's salary is $82,000 and Hillary's salary is $80,000.Hillary receives dividend income of $7,000 from stock inherited from her parents.Todd receives interest income of $5,000 from bonds purchased with his salary after marriage.Todd and Hillary receive $10,000 dividend income from stock they purchased jointly.Todd's income would be

An individual buys 200 shares of General Electric Corporation stock.In lieu of receiving quarterly dividends,the individual signs an agreement to have dividends reinvested by GE into additional shares of stock.The individual does not receive dividend checks so he need not recognize the quarterly dividends for tax purposes.

Under the terms of their divorce agreement,Humphrey transferred Corporation H stock to his former wife,Greta,as a property settlement.At the time of the transfer,the stock had a basis to Humphrey of $40,000 and a fair market value of $55,000.What is the tax consequence of this transaction to Humphrey,and what is Greta's basis in the Corporation H stock?

Property settlements made incident to a divorce have no immediate tax consequences; that is,the transfer from one spouse to another is not taxable.

Raoul sells household items on an Internet website.He receives $3,340 cash and a pair of high-power binoculars from this activity during the year.What tax issues should Raoul consider?

Gains realized from property transactions are included in gross income unless a nonrecognition rule applies.

The Cable TV Company,an accrual-basis taxpayer,allows its customers to pay by the month,by the year,or two years in advance.In December 2017,the company collected the following amounts applicable to future services: Assuming Cable TV wants to minimize income reported for 2016,what is the amount of gross income that must be reported for 2017 and how much of the income from these contracts will be reported in 2018?