Exam 2: Gross Income and Exclusions

Toby transfers to Jim a life insurance policy with a face value of $25,000 and a cash value of $5,000 in payment of a personal debt. Jim continues to make premium payments on the policy until Toby's death. At that time, Jim had paid $1,500 in premiums. a.How much income must Jim report when he receives the $25,000 in proceeds? b.Would your answer be different if Toby and Jim were partners in a partnership? Why?

Disability benefits are generally taxable to the individual receiving the amounts.

The receipt of an inheritance is excluded from the taxable income of the recipients.

In some cases, Social Security benefits may be partially taxable.

Anthony is a marine biologist who spends months living on a boat in the ocean studying the impact of runoff water a hundred miles off the coast as a part of his job. Which of the following sentences is the most accurate?

Barry has a successful methamphetamine laboratory. Producing methamphetamine is illegal under federal law. Is Barry required by law to report the income from his lab on his tax return? Why?

Kim earned $30,000 from Pfizer before she was laid off. She then collected $7,000 of unemployment benefits. Finally, Kim received a $12,500 scholarship for tuition so she could return to college to earn a microbiology degree. How much does Kim need to report as income on her tax return?

Cynthia, age 64, retired in June. Starting in July, Cynthia received $2,000 per month from an annuity. She has contributed $260,000 to the annuity. Her life expectancy is 20 years. How much is excluded from income using the simplified method? Use 260 as the factor to divide by. 1. Enter total amount received this year 2. Enter cost in plan at the annuity starting date 3. Factor at annuity starting date 260 4. Divide line 2 by line 3 5. Multiply line 4 by the number of monthly payments this year 6. Amount, if any, recovered tax free in prior years 7. Subtract line 6 from line 2 8. Enter the smaller of line 5 or 7 9. Taxable amount this year. Subtract line 8 from line 1 ​

If a taxpayer holding EE bonds makes an election with respect to the taxation of the bonds, how is the interest which accrues on the bonds, but is not paid, taxed each year?

Unemployment compensation is fully taxable to the individual receiving the compensation.

Group term life insurance premiums paid by an employer for insurance amounts less than $50,000 must be included in the employee's income.

For the current year, the maximum percentage of Social Security benefits which might be included in a taxpayer's gross income is?

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. -Alimony

Cash allowances for meals or lodging generally must be included in the employee's income.

Jack is a lawyer and Jeri is a child psychologist. Jack prepares Jeri's estate planning at no charge and Jeri agrees to counsel Jack's daughter six times at no charge in return for the estate planning. The value of the estate planning is $1,000 and the value of the therapy sessions is $1,000. a.How much income does Jack have? Why? b.How much income does Jeri have? Why?

In which of the following cases may the employee exclude the meals and/or lodging:

In June of the current year, Rob's wealthy stepmother died and left him a stock portfolio worth $600,000. Before she died, she gave him a gift of $20,000 in cash. How much of these amounts, if any, are taxable to Rob? Why?

A taxpayer in the 28 percent tax bracket invests in a City of San Diego bond paying 8 percent interest. What taxable interest rate would provide the same after-tax return?

Laura and Leon were granted a divorce in 2007. In accordance with the decree, Leon made the following payments to Laura in 2016: How much of the payments can he deduct as alimony in 2016?

​The amount of employee reimbursement in 2016 for parking and mass transit costs are $255 per month each.