Exam 2: Gross Income and Exclusions

All of the following amounts are taxable income to the recipient except:

Which of the following is classified as nontaxable income?

Laura and Leon were granted a divorce in 2011. In accordance with the decree, Leon made the following payments to Laura in 2016: How much should Laura include in her 2016 taxable income as alimony?

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2016 tax year. -Inheritances

Employer-provided spending accounts:

Richard and Alice are divorced and under the terms of their written divorce agreement signed on December 30, 2009, Richard was required to pay Alice $1,500 per month of which $600 was designated as child support. He made 12 such payments in 2016. Additionally, Richard voluntarily paid Alice $1,200 per month for 12 months of 2016, no portion of which was designated as child support. Assuming that Alice has no other income, her tax return for 2016 should show gross income of:

Payments made to a qualified retirement plan by an employer are considered part of the employee's investment in the contract for calculation of the annuity exclusion ratio.

An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9 percent per year and a municipal bond which pays an interest rate of 7.9 percent per year. The investor is in the 15 percent tax bracket. Which bond will give the investor a higher after-tax interest rate and for which reason?

Roger is required under a 2010 divorce decree to pay $500 of alimony and $200 of child support per month for 12 years. In addition, Roger makes a voluntary payment of $100 per month. How much of the total monthly payment is deductible by Roger?

As a Christmas thank you for being a good employee, Ed's TV Repair gave 62-year-old Edwina three shares of its stock worth $20 per share. Edwina then received dividends of $1 per share related to the stock. How much should be included in Edwina's gross income?

Sam died on January 15, 2006 and left his wife, Terry, an insurance policy with a face value of $100,000. Terry elected to receive the proceeds over a 10-year period ($10,000 plus interest each year). This year Terry receives $11,500 ($10,000 proceeds plus $1,500 interest) from the insurance company. How much income must Terry report from this payment?

Curt's tax client, Terry, is employed at a large company that offers medical flexible spending accounts to its employees. Terry must decide at the beginning of the year whether he wants to put as much as $2,550 of his salary into the medical flexible spending account. Terry has excellent insurance through the company and is very healthy. He does not expect to have any medical expenses during the year. Terry does not itemize deductions. Should Curt recommend that Terry put the maximum in his medical flexible spending account? Why or why not?

To promote business activity, the tax rules generally are very liberal in treating business gifts as tax-free income to the recipient.

All of the following amounts are excluded from gross income, except:

An auto that is received as a prize should be included in the taxpayer's income at its list price rather than its fair market value.

Bonnie receives salary income of $32,000, unemployment compensation of $4,400, and interest income of $1,200 and a gift of $7,000 in cash from her aunt. How much total income does Bonnie have?

Payments made by an employer for health insurance on behalf of an employee are considered income to the employee at the time the payments are made.

Elmer received the following distributions from Virginiana Mutual Fund for the calendar year 2016: Elsie, Elmer's wife, did not own any of the Virginiana Mutual Fund shares, but she did receive $1,475 in interest on a savings account at the Moss National Bank and $175 in interest on California Municipal Bonds. Elmer and Elsie filed a joint income tax return for 2016. What amount is reportable as taxable interest income?

Jerry and Sally were divorced under an agreement executed July 1, 2016. The terms of the agreement provide that Jerry will transfer to Sally his interest in a rental house worth $250,000 with a tax basis to Jerry of $80,000. What is the amount of the gain that must be recognized by Jerry on the transfer of the property and what is Sally's tax basis in the property after the transfer, respectively?

Andy landscaped his friend's house in return for a couch set and an HD television worth $8,000. How much income must Andy report on his tax return for his services?