Exam 5: Gross Income: Exclusions

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.

The taxpayer's marginal tax bracket is 25%.Which would the taxpayer prefer?

Ben was diagnosed with a terminal illness.His physician estimated that Ben would live no more than 18 months.After he received the doctor's diagnosis,Ben cashed in his life insurance policy and used the proceeds to take a trip to see relatives and friends before he died.Ben had paid $12,000 in premiums on the policy,and he collected $50,000,the cash surrender value of the policy.Henry enjoys excellent health,but he cashed in his life insurance policy to purchase a new home.He had paid premiums of $12,000 and collected $50,000 from the insurance company.

Olaf was injured in an automobile accident and received $25,000 for his physical injury,$50,000 for his loss of income,and $10,000 punitive damages.As a result of the award,the amount Olaf must include in gross income is:

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

Mel was the beneficiary of a $45,000 group term life insurance policy on his wife.His wife's employer paid all of the premiums on the policy.Mel used the life insurance proceeds to purchase a United States Government bond,which paid him $2,500 interest during the current year.Mel's Federal gross income from the above is $2,500.

Adam repairs power lines for the Egret Utilities Company.He is generally working on a power line during the lunch hour.He must eat when and where he can and still get his work done.He usually purchases something at a convenience store and eats in his truck.Egret reimburses Adam for the cost of his meals.

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime,approximately 25 days each year.The supper money received:

Doug and Pattie received the following interest income in the current year: ​ Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

On January 1,2007,Cardinal Corporation issued 5% 25-year bonds at par and used the $12,000,000 proceeds to finance the construction of a new plant.On January 1,2017,the company acquired the bonds on the open market for $11,500,000.Assuming that Cardinal Corporation is neither bankrupt nor insolvent,the acquisition and retirement of the bonds results in which of the following:

An employee can exclude from gross income the value of meals provided by his or her employer whenever:

Under the Swan Company's cafeteria plan,all full-time employees are allowed to select any combination of the benefits below,but the total received by the employee cannot exceed $8,000 a year. I.Group medical and hospitalization insurance for the employee,$3,600 a year. II.Group medical and hospitalization insurance for the employee's spouse and children,$1,200 a year. III.Child-care payments,actual cost but not more than $4,800 a year. IV.Cash required to bring the total of benefits and cash to $8,000. Which of the following statements is true?

Assuming a taxpayer qualifies for the exclusion treatment,the interest income on educational savings bonds:

Tonya is a cash basis taxpayer.In 2017,she paid state income taxes of $8,000.In early 2018,she filed her 2017 state income tax return and received a $900 refund.

Carmen had worked for Sparrow Corporation for thirty years when she died of a heart attack at age 60.She was practically penniless at the time of her death,owed a $12,000 hospital bill,and had a disabled spouse.The company was very concerned about its public image,and rather than run the risk of embarrassment from one of its long-term employees dying and leaving her spouse with insufficient means,the Board of Directors agreed to pay Carmen's hospital bill and to give her spouse $6,000 per year for the rest of his life.Discuss both sides of the question whether Carmen (or her estate) and her spouse realize any taxable income from the above.

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.

Louise works in a foreign branch of her employer's business.She earned $5,000 per month throughout the relevant period.Which of the following is correct:

Emily is in the 35% marginal tax bracket.She can purchase a York County school bond yielding 3.5% Interest and the interest is not subject to a 5% state tax.But she is interested in earning a higher return For comparable risk.Which of the following is correct:

Melody works for a company with only 22 employees.Her employer contributed $2,000 to her health savings account (HSA),and the account earned $100 in interest during the year.Melody withdrew only $1,200 to pay medical expenses during the year.Melody is not required to recognize any gross income from the HSA for the year.

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.