Exam 4: Income Exclusions

Cornell is a building contractor who builds 25-30 homes a year. Charlotte is a real estate broker who sells all of Cornell's homes. Charlotte has recently referred a couple to Cornell who wanted him to build a $400,000 home for them. Knowing that Charlotte and her husband enjoy skiing, he bought her a nice pair of skis and boots. I.The "gift" appears to be a form of compensation. II.The skis are considered a gift for income tax purposes. III.Substance-over-form applies to this situation. IV.Charlotte recognizes gross income from the receipt of the skis. ​

The information that follows applies to the current year for Revis and Patrica, a married couple. Based on the above information, what is Revis and Patrica 's adjusted gross income? - Revis is employed as a shoe salesman; his compensation is $\$ 65,000$ . - $\quad$ Patrica is employed as an interior designer; her compensation is $\$ 90,000$ . - Revis and Patrica have total allowable itemized deductions of $\$ 15,000$ . - Revis and Patrica have two dependent children. - Revis and Patrica have other economic income as follows: - Interest on U.S. Treasury bonds $\$ 1,000$ . - Interest on French government bonds $\$ 750$ . - Interest on City of Miami, Fla bonds $\$ 1,200$ . - Patrica won $\$ 500$ from the state lottery - Revis's wealthy uncle dies and leaves him $\$ 10,000$ . - Patrica sold Revis's baseball card collection for $\$ 3,000$ . Revis bought it for $\$ 800$ . - Patrica sells Revis's fishing boat for $\$ 2,000$ . Revis had purchased the boat for $\$ 2,500$ .

Match each statement with the correct term below. -De minimus fringe

Which of the following non-cash employee benefits would be excluded from the taxable income of the employee? Unless indicated otherwise all benefits are provided on a non-discriminatory basis.

During the current year, Eleanor receives land valued at $30,000 from the estate of her grandfather. Her grandfather's basis in the land was $8,000. Eleanor sells the land for $34,000 late in the year. Eleanor's gross income is:

Dawn's employer, Rourke Enterprises, pays $265 monthly for her covered parking space while at work. Rourke pays $165 monthly for uncovered parking space for Art, and does not pay anything toward Dan's parking.

Maria is on a "full ride" tennis scholarship at Western University. Her $12,500 scholarship covers tuition and books ($7,000) and room and board ($5,500). Maria's gross income is

Each of the numbered items below is accorded only one of the following lettered treatments. Use the existing law as it applies to the current year, match the best answer to the statements below. -Julian's tenant improves her side of the duplex by making improvements to the bathroom and kitchen that are worth $750. Julian does not adjust her rent for the $750 improvements.

Todd, age 26 and single, is an employee of the Ice Corporation. Todd's annual salary is $50,000. Ice has a qualified pension into which employees may contribute 5% of their annual salary (Todd contributes the maximum). The corporation also offers employees a flexible benefits plan. Todd pays $500 into the plan and is reimbursed for $500 of medical expenses not covered by his medical insurance. Ice also provides Todd with the following benefits: What is Todd's taxable income from his employment? Medical insurance \ 3,200 Group-term li fe insurance ( \ 80,000 of coverage) 900 Free-parking 3,300 Dues to professional organizations 300 Health club membership 860 ?

Which of the following statements is/are correct? I.Terry's divorce decree provides that his ex-wife is to pay him alimony of $500 per month until their son reaches age 18 or dies, at which time the payment will be reduced to $300. Terry recognizes $300 of alimony income each month. II.Jerry is the manager of Northgate apartments. He is required to live in an apartment in the complex that normally rents for $600 per month. Jerry must recognize $600 per month as income from his management job. III.Lorraine's aunt dies during the current year. The aunt's $20,000 life insurance policy names Lorraine as the beneficiary. Lorraine receives $20,000 from the policy in December. Lorraine must include the $20,000 in her gross income. IV.Helen receives a teaching assistantship from the music department that pays her $300 per month. Helen must work as a lab assistant 15 hours per week. Helen's total direct education costs are $9,000. Helen includes the $300 per month in her income. ​

Hannah is an employee of Bolero Corporation. Bolero pays the medical insurance premiums of all of its employees. Because of large deductible levels and limitations on the payment of certain medical expenses, the basic health insurance policy does not cover all medical costs. During the current year, Bolero adopted a Flexible Benefits Plan that employees can contribute into to pay for any medical expenses not covered by insurance. Hannah pays $2,650 into the plan during the current year. Premiums paid by Bolero for Hannah's medical insurance were $5,000. I.Hannah's gross income from her Bolero salary is reduced by the $2,650 payment into the Flexible Benefits Plan. II.Amounts paid for medical costs by the medical insurance policy are excluded from Hannah's gross income. ​

Darren is a single individual who worked the entire year for Woodworks Company in Brazil. He paid $13,000 in Brazilian taxes on his Woodworks salary of $70,000. What is Darren' lowest tax liability if his taxable income is $40,000, before considering the Woodworks salary?

Match each statement with the correct term below. -Meals provided by employer

Arthur's employer establishes Health Savings Accounts (HSAs) for its employees. Arthur pays $2,100 into his HSA. During the year, the HSA earns $90 interest and Arthur receives $1,850 from the HSA for reimbursement of medical expenses. I.Arthur must include $90 in gross income from the HSA arrangement. II.Arthur loses the $250 in contributions that are not spent on medical expenses in the current year. ​

Health Savings Accounts are available only to self-employed individuals or small businesses.

Patrick ran up a large credit card debt. Since the bank wanted to keep Patrick's account they forgave $5,000 of his balance. Patrick was solvent before and after the forgiveness. He has to include the $5,000 in his income.

Carson, age 34 and single, is an electrical engineer employed by Summit Corporation. Carson's annual salary is $84,000. Summit Corporation's qualified pension plan matches employee's contributions to the plan up to 5% of the employee's annual salary. During the current year, Carson contributes the $4,200 maximum to the plan, which is matched by Summit. Due to high cost of medical insurance, the corporation does not provide any medical insurance to its employees. Instead, it offers a flexible benefits plan that employees can use to pay for medical insurance, unreimbursed medical costs, and childcare costs. Carson elects to have $2,500 paid into the plan. Carson uses the plan to purchase medical insurance costing $2,100. Carson spends an additional $650 from the plan on eyeglasses and dental costs. Carson has asked you to prepare his tax return. Your initial interview with him discloses that he has $1,050 of allowable deductions for adjusted gross income and $3,700 of allowable itemized deductions. a.Compute Carson's taxable income and his tax liability. b.After your initial interview, Carson calls you and says that he just received two statements concerning sales of investments that he had forgotten about. On January 15, he sold shares of stock for $5,500. Carson purchased the stock in November for $4,500. He also received $2,000 on March 15 from the sale of some land that he had received as an inheritance from his grandfather in 2000. He has a statement from the executor of his grandfather's estate listing his basis in the land at $10,000. Explain the effect of these two sales on Carson's taxable income and his tax liability.

Ally served as chairperson of the local school board. Upon completion of her term in office, the organization awards her a silver-serving tray in recognition of her outstanding service to the organization. The value of the tray is $200. What are the tax effects of the award? I.The value of the tray is included in gross income because of services rendered. II.The tray is a gift because it is from a detached and disinterested generosity. ​

Which of the following statements is/are correct? I.Danny falls off a ladder at work and is hospitalized for two weeks. He receives $650 from the state worker's compensation fund, his regular $1,800 salary, and $925 disability pay from his employer's health and accident insurance plan. Danny must recognize $2,725 of income from the payments. II.Donna's grandfather dies and leaves her City of Goldsboro bonds that are worth $57,000. The bonds have a face value of $50,000 and pay 5% annual interest. Donna must include the $2,500 of interest she receives in her gross income. ​

Lorraine is an employee of National Corporation. National pays the medical insurance premiums of all of its employees. Because of large deductible levels and limitations on the payment of certain medical expenses, the basic health insurance policy does not cover all medical costs. During the current year, National adopted a Flexible Benefits Plan into which employees can contribute to pay for any medical expenses not covered by insurance. Lorraine pays $2,650 into the plan during the current year. Premiums paid by National for Lorraine's medical insurance were $2,400. I.There is no tax effect from the $2,650 payment into the Flexible Benefits Plan. II.Lorraine's gross income from her National salary is reduced by the $2,650 payment into the Flexible Benefits Plan. III.If Lorraine does not use the entire $2,650 paid into the Flexible Benefits Plan during the current year, she may obtain a refund of any amounts not spent from National. IV.Amounts paid for medical costs by the medical insurance policy are excluded from Lorraine's gross income. ​