Exam 5: Gross Income: Exclusions

Sarah's employer pays the hospitalization insurance premiums for a policy that covers all employees and retired former employees. After Sarah retires, the hospital insurance premiums paid for her by her employer can be excluded from her gross income.

Turquoise Company purchased a life insurance policy on the company's chief executive officer, Joe.After the company had paid $400,000 in premiums, Joe died and the company collected the $1.5 million face amount of the policy.The company also purchased group term life insurance on all its employees. Joe had included $16,000 in gross income for the group term life insurance premiums. Joe's widow, Rebecca, received the $100,000 proceeds from the group term life insurance policy.

Barney is a full-time graduate student at State University.He serves as a teaching assistant for which he is paid $700 per month for 9 months and his $5,000 tuition is waived.The university waives tuition for all of its employees. In addition, he receives a $1,500 research grant to pursue his own research and studies.Barney's gross income from the above is:

Flora Company owed $95,000, a debt incurred to purchase land that serves as security for the debt.

Christie sued her former employer for a back injury she suffered on the job in 2011.As a result of the injury, she was partially disabled.In 2012, she received $240,000 for her loss of future income, $160,000 in punitive damages because of the employer's flagrant disregard for the employee's safety, and $15,000 for medical expenses. The medical expenses were deducted on her 2011 return, reducing her taxable income by $12,000. Christie's 2012 gross income from the above is:

Evaluate the following statements:

Fresh Bakery often has unsold donuts at the end of the day.The bakery allows employees to take the leftovers home.The employees are not required to recognize gross income because the bakery does not incur any additional cost.

Swan Finance Company, an accrual method taxpayer, requires all of its customers to carry credit life insurance.If a customer dies, the company receives from the insurance company the balance due on the customer's loan.Ali, a customer, died owing Swan $1,500.The balance due included $200 accrued interest that Swan has included in income.When Swan collects $1,500 from the insurance company, Swan:

Theresa sued her former employer for age, race, and gender discrimination.She claimed $200,000 in damages for loss of income, $300,000 for emotional harm, and $500,000 in punitive damages.She settled the claim for $700,000. As a result of the settlement, Theresa must include in gross income:

Employers can provide numerous benefits to their employees and the employees are permitted to exclude the value of these benefits from gross income.What are the effects of the exclusions on:

If a tax-exempt bond will yield approximately .65 (1 - .35) times the yield on a taxable bond of equal risk, who benefits from the tax exemption: the Federal government, the state and local governments who issue the bonds, or the investors?

Iris collected $100,000 on her deceased husband's life insurance policy.The policy was purchased by the husband's employer under a group policy. Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer.She elected to collect the policy in 10 equal annual payments of $12,500 each.

The Royal Motor Company manufactures automobiles.Employees of the company can buy a new automobile for Royal's cost plus 2%.The automobiles are sold to dealers at cost plus 20%.Generally, employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealer's cost.Officers of Local Dealer are allowed to use a company vehicle (for personal use) at no cost.

If an employer pays for the employee's long-term care insurance premiums, the employee can exclude from gross income the premiums but all of the benefits collected must be included in gross income.

Sandy is married, files a joint return, and expects to be in the 28% marginal tax bracket for the foreseeable future.All of his income is from salary and all of it is used to maintain the household.He has a paid-up life insurance policy with a cash surrender value of $100,000.He paid $60,000 of premiums on the policy.His gain from cashing in the life insurance policy would be ordinary income.If he retains the policy, the insurance company will pay him $3,000 (3%) interest each year.Sandy thinks he can earn a higher return if he cashes in the policy and invests the proceeds.

Julie was suffering from a viral infection that caused her to miss work for 90 days.During the first 30 days of her absence, she received her regular salary of $4,000 from her employer.For the next 60 days, she received $6,000 under an accident and health insurance policy purchased by her employer. The premiums on the health insurance policy were excluded from her gross income. During the last 30 days, Julie received $2,000 on an income replacement policy she had purchased. Of the $12,000 she received, Julie must include in gross income:

Hazel, a solvent individual but a recovering alcoholic, embezzled $6,000 from her employer.In the same year that she embezzled the funds, her employer discovered the theft.Her employer did not fire her and told her she did not have to repay the $6,000 if she would attend Alcoholics Anonymous.Hazel met the conditions and her employer canceled the debt.

Harold bought land from Jewel for $150,000.Harold paid $50,000 cash and gave Jewel an 8% note for $100,000.The note was to be paid over a five-year period.When the balance on the note was $80,000, Jewel began having financial difficulties.To accelerate her cash inflows, Jewel agreed to accept $60,000 cash from Harold in final payment of the note principal.

James, a cash basis taxpayer, received the following compensation and fringe benefits in 2012: His actual salary was $72,000. He received only $66,000 because his salary was garnished and the employer paid $6,000 on James's credit card debt he owed. The wage continuation insurance is available to all employees and pays the employee three-fourths of the regular salary if the employee is sick or disabled.The long-term care insurance is available to all employees and pays $150 per day towards a nursing home or similar facility.What is James's gross income from the above?

What Federal income tax benefits are provided for college students?