Exam 5: Gross Income: Exclusions

A company has a medical reimbursement plan for officers that covers all costs that the insurer will not pay. However, for all employees who are not officers, the medical reimbursement plan applies only after the employee has paid $1,000 from his or her own funds. An officer incurred $1,500 in medical expenses and was reimbursed for that amount. An hourly worker also incurred $1,500 in medical expense and was reimbursed $500.

George is employed by the Quality Appliance Company.All the full time employees are allowed to purchase appliances at the company's cost plus 10%.The employee also is given, at no cost, a 1-year service contract on all the goods purchased from the company.George purchased a refrigerator for $500.The company's normal selling price for the refrigerator is $800.George also received a service contract, at no charge, that had a value of $150.During the year, George was required to have his refrigerator serviced once.The cost of the call would have been $75 if he had not had the service contract.Is George required to recognize any income from the purchase of the refrigerator, the receipt of the service contract, and the service call?

Early in the year, Marion was in an automobile accident during the course of his employment.As a result of the physical injuries he sustained, he received the following payments during the year: What is the amount that Marion must include in gross income for the current year?

Brooke works part-time as a waitress in a restaurant. For groups of 7 or more customers, the customer is charged 15% of the bill for Brooke's services. For parties of less than 7, the tips are voluntary. Brooke received $11,000 from the groups of 7 or more and $7,000 in voluntary tips from all other customers. Using the customary 15% rate, her voluntary tips would have been only $6,000.Brooke must include $18,000 ($11,000 + $7,000) in gross income.

The employees of Mauve Accounting Services are permitted to use the copy machine for personal purposes, provided the privilege is not abused. Ed is the president of a civic organization and uses the copier to make several copies of the organization's agenda for its meetings. The copies made during the year would have cost $150 at a local office supply.

The president of Silver Corporation is assigned a secretary.When the secretary has completed work on company matters, the secretary is available to do the president's personal matters (pick up laundry, buy groceries) so long as the privilege is not abused.No other employee has a personal secretary.

Ron, age 19, is a full-time graduate student at City University.During 2012, he received the following payments: Ron served as a resident advisor in a dormitory and, therefore, the university waived the $2,500 charge for the room he occupied. What is Ron's adjusted gross income for 2012?

In 2012, Bob's unincorporated business has a net loss of $30,000.Bob has investment income of $40,000.Itemized deductions and personal exemptions total $26,000.Thus, on his 2012 tax return, his taxable income was a negative $16,000.In 2012, Bob discovered that an employee has stolen $25,000 (pocketing the proceeds from unrecorded sales) from the business.This $25,000 theft loss is included in calculating the net loss of Bob's business of $30,000.In 2013, Bob recovers the $25,000 from the former employee.How can the tax benefit rule assist Bob in 2013?

Nicole's employer pays her $150 per month towards the cost of parking near a railway station where Nicole catches the train to work.The employer also pays the cost of the rail pass, $75 per month.Nicole can exclude both of these payments from her gross income.

Cash received by an individual:

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?

Carla is a deputy sheriff. Her employer requires that she live in the county where she is employed. Housing is very expensive; so the county agreed to pay her $4,800 per year to cover the higher cost of housing. Carla must include the housing supplement in her gross income.

Workers' compensation benefits are included in gross income if the employer also pays the employee while the employee is recovering from his or her injury.

Because graduate teaching assistantships are awarded on the basis of academic achievement, the payments are generally scholarships and therefore are excluded from gross income.

In 2012, Theresa was in an automobile accident and suffered physical injuries.The accident was caused by Ramon's negligence.In 2013, Theresa collected from his insurance company.She received $15,000 for loss of income, $25,000 punitive damages, and $8,000 for medical expenses which she had deducted on her 2012 tax return (the amount in excess of 7.5% of adjusted gross income).As a result of the above, Theresa's 2013 gross income is increased by $33,000.

Benny loaned $100,000 to his controlled corporation.When it became apparent the corporation would not be able to repay the loan in the near future, Benny canceled the debt.The corporation should treat the cancellation as a nontaxable contribution to capital.

Employees of the Valley Country Club are allowed to use the golf course without charge before and after working hours on Mondays, when the number of players on the course is at its lowest.Tom, an employee of the country club played 40 rounds of golf during the year at no charge when the non-employee charge was $20 per round.

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:

Calvin's property was taken by the State of Louisiana to build a highway overpass. He disputed the amount of the condemnation award he was to receive and ultimately collected an amount for the property plus $15,000 interest on the award. Calvin can exclude from gross income the $15,000 interest he received from the State of Louisiana associated with the condemnation award.

George, an unmarried cash basis taxpayer, received the following amounts during 2012: What amount should George report as gross income from dividends and interest for 2012?