Exam 3: Income Sources

James bought an annuity for $42,000 several years ago. The annuity will pay him $250 per month from age 66 until he dies. During the current year, James turns 66 and received his first annuity payment. His life expectancy is 25 years. I.If James receives more than 260 payments, all payments received after those are totally included in income. II.James should include $50 of each payment in adjusted gross income. ​

On January 1 of the current year, Beverly borrows $100,000 from her employer, Happy Hills Nursing Home. Beverly uses this loan to pay off credit cards and consumer loans. Happy Hills considers Beverly to be a loyal employee, and allows her up to five years to repay the loan. Beverly is not a shareholder or officer in the Happy Hills. Happy Hills does not charge any interest on the loan. Both Happy Hills and Beverly are on a December 31 fiscal year end. What is the income tax issue for Happy Hills? You do not need to do any calculations.

Allen has the following capital gains and losses and Qualified dividend income during the current year: Allen's capital gain/loss position for the year is: Short-term capital gain \ 4,000 Collectibles loss (5,000) Long-term capital gain 1,000 Qualified dividend income 3,000

Waldo and Fern are negotiating a divorce settlement. Waldo has offered to pay Fern $12,000 each year for a guaranteed 10 years. What are the tax implications of this proposition? I.Since the payments are periodic and in cash, the payments qualify as alimony. II.If the payments qualify as child support, Fern recognizes gross income and Waldo has a deduction from Adjusted Gross Income. ​

How much gross income does Ron have from the following items of economic income? ? - Received cash gift of $\$ 5,000$ from parents. - Received $\$ 12,000$ in alimony payments and $\$ 6,000$ in child support from former spouse (2018 agreement). - Won $\$ 4,000$ in Indiana lottery scratch off game. - Investment in IBM stock increased in value by $\$ 15,000$ . - Collected $\$ 12,000$ in unempl oyment benefits.

Jerry is a furniture salesman for Ashland's Furniture Mart. Jerry purchases a bedroom suite from Ashland's for $10,000. The sticker price is $14,000. Ashland's policy is to "discount" all customer purchases for up to $2,000 off of the sticker price for purchases over $10,000. What is the tax treatment of Jerry's furniture purchase? I.Jerry must include $4,000 in his gross income. II.Ashland's Furniture Mart can deduct $2,000 as compensation expense in addition to properly accounting for the sale of the furniture. ​

Paul won the Nobel Prize for Literature. He is awarded $1,000,000. His tax situation is I.In general, the award must be included in gross income. II.The award may be excluded if he gives it to a qualified charity. III.The award may be excluded if he gives it to the U.S. Government. IV.Awards for literary achievement are not taxable. ​

Janelle receives a sterling silver tea set valued at $500 from her employer during her retirement dinner for her long years of service. The employer has a tradition of giving awards to some retiring employees, but has no qualified plan. I.$400 is excludable from Janelle's Gross Income. II.The $500 is excludable even if her employer only gives awards to its top executives. ​

Melissa is currently working with her divorce attorney on her impending divorce from her husband David. She recently discovered that she is pregnant with David's child. Melissa intends to keep and raise the child. David's attorney has submitted a proposal that David pay Melissa alimony of $1,500 per month. The proposed alimony contract satisfies the IRS tests for alimony. As a tax planner, what advice do you have for Melissa? Is there a way to structure the payments to minimize Melissa's income taxes?

In 2006, the Force Partnership purchased an apartment building for $600,000 and paid an additional $10,000 in acquisition fees. The partnership properly claimed $130,000 in depreciation on the building. In 2018, Force allows the building to be foreclosed by the bank for $490,000, the amount of the outstanding loan principal. What is the realized gain or loss, if any, for the partnership resulting from the foreclosure?

Chicago Cleaning Services provides nightly janitorial services at a monthly rate of $300. Customers have three payment options: If Chicago Cleaning is an accrual basis taxpayer: Month-by-month payments \ 300 One year advance payment 3,360(\ 280 per month ) Two year advance payment 6,480(\ 270 per month ) I.All cash payments are taxable when they are received. II.One-year advance payments must be included in income in the year they are received. III.Two-year advance payments attributable to service in two years; hence, must be included in income in the year they are received. IV.One-year advance payments may be deferred: $280 would be included in income for each month of service provided. ?

Which of the following constitutes a realization? I.Jamie prepares a will for Wilson. He pays her by painting her house. II.Jones' cow gives birth. The calf will become a member of Jones' feeder cattle herd. III.Oak Ridge Coal Company's coal mine reserves were recently appraised at $5,750,000 more than the previous year's appraisal. IV.Lea's employer gives her (and all other salaried employees) a weekend in Orlando in recognition of their efforts to make this a successful year. ​

According to the U.S. Supreme Court, income may be defined as the gain derived from capital, from labor, or from both combined provided it is understood to include profit gained through sale or conversion of capital assets.

Nora, a single individual age 60, receives a gold watch worth $700 during her retirement luncheon, based upon her long tenure with the company. The award was made under a non-qualified plan. How much of the award must Nora recognize in her gross income for the current year?

Ira sells two of his personal automobiles, a Dodge and an Edsel, during the current tax year. The Dodge cost Ira $8,000, and the Edsel's cost was $3,000 when they were acquired five years ago. The Dodge is sold for $1,000 on April 20, and the Edsel is sold for $15,000 on July 15. What is the tax treatment of these sales? I.Both cars are capital assets. II.The net income tax effect of these sales is zero. III.Ira must recognize a long-term capital gain of $12,000. IV.Ira must recognize a net long-term capital gain of $5,000. ​

The holding period for receiving long-term capital gain treatment is more than 12 months.

Match each statement with the correct term below. -Property settlement

Charles bought an annuity for $30,000 several years ago. The annuity will pay him $250 per month from age 62 until he dies. During the current year, Charles turns 62 and receives his first annuity payment. I.If Charles dies after receiving 192 monthly payments, he must amend prior returns and correct the income reported based on 192 monthly payments. II.If Charles receives more than 260 payments, the total of each payment received after the 260^th payment is included from income. ​

Mercedes has a net long-term capital gain of $3,000 and a net short-term capital loss of $10,000. She can deduct $3,000 of the $7,000 net loss as a deduction for adjusted gross income in the current year. She must defer realizing any tax benefit from the remaining $4,000 loss until the next year.

Determine the amount of gross income the taxpayer must report in each of the following situations. Explain why the amount is taxable and how you determined the taxable amount. a.Marlon purchased an annuity costing $13,000 that will pay him $300 per month for life upon reaching age 65. In 2018, when his life expectancy is 14 years, Marlon turns 65 and begins receiving the annuity payments. In 2018, Marlon receives $1,800 (6 payments) from the annuity. b.Fargo Systems Corporation, an accrual basis taxpayer, leases computer time on its mainframe computer. In November 2018, Fargo enters into a two-year lease with Bismarck Processing, Inc. The lease agreement requires Bismarck to pay a $4,800 fixed fee when the lease is signed and $100 per hour of mainframe use, paid on a monthly basis. Fargo receives the $4,800 payment on November 1, 2018. Bismarck pays Fargo $800 on December 15, 2018 for November computer use and $1,200 on January 18, 2019 for December computer use. c.Maria, a single taxpayer, is retired. During the current year she receives $19,000 from her employer's qualified pension plan, $1,000 in interest on a savings account, $30,000 in interest on tax-exempt municipal bonds, and $10,000 in Social Security benefits. d.Stuart works for Prairie Surveyors of Kansas. During the current year, Prairie Surveyors replaces all of its computer equipment. Stuart makes a deal with his boss to purchase one of the old computers for $200. Prairie Surveyors received a $1,000 trade-in allowance on the other computers it replaced.?