Exam 4: Gross Income: Concepts and Inclusions

Jake is the sole shareholder of an S corporation that earned $50,000 in 2010.The corporation was short on cash and therefore distributed only $15,000 to Jake in 2010.Jake is required to recognize $50,000 of income from the S corporation in 2010.

April is a 50% partner in Pale Partnership.During the year,she withdraws $100,000 and her share of the partnership profits is $125,000.April must include $125,000 in her gross income.

On January 1,2010,Faye gave Todd,her son,a 36-month certificate of deposit she purchased December 31,2008,for $4,319.Faye gave Todd 1,000 shares of ABC,Inc. ,on December 2,2010.The certificate had a maturity value of $5,000 and the yield to maturity was 5%.On November 30,2010,ABC,Inc. ,had declared a dividend of $1.00 payable to stockholders of record on December 5th.How much interest and dividends should Todd include in his gross income for 2010?

Green,Inc. ,provides group term life insurance for all of its employees.The coverage equals twice the employee's annual salary.Sam,a vice-president,worked all year for Green,Inc.and received $200,000 of coverage for the year at a cost to Green of $2,800.The Uniform Premiums (based on Sam's age)are $.30 per month for $1,000 of protection.How much must Sam include in gross income this year?

In December 2010,Mary collected the December 2010 and January 2011 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2010 for the 2011 rent should be included in her 2011 gross income.

Terri purchased an annuity for $100,000.She was to receive $8,000 per year and her life expectancy was 20 years.She died after receiving 15 payments.Terri's final return should reflect a loss of $40,000 (5 payments not made * $8,000).

Office Palace,Inc. ,leased an all-in-one printer to a new customer,Ashley,on December 27,2010.The printer was to rent for $700 per month for a period of 36 months beginning January 1,2011.Ashley was required to pay the first and last month's rent at the time the lease was signed.Ashley was also required to pay a $1,000 damage deposit.Office Palace must recognize as income for the lease:

The Blue Utilities Company paid Sue $1,500 for the right to lay an underground electric cable across her property anytime in the future.

If the alimony recapture rules apply,the recipient of the alimony decreases his or her AGI by a portion of the amount included in gross income as alimony in a prior year or years.

Teal company is an accrual basis taxpayer.On December 1,2010,a customer paid for an item that was on hand,but the customer wanted the item delivered in early January 2011.Teal delivered the item on January 4,2011.Teal included the sale in its 2010 income for financial accounting purposes.

Harry and Wanda were married in Virginia,a common law state,but moved to Texas,a community property state.The calculation of their income on a joint return:

The taxable portion of Social Security benefits is dependent upon:

Amos is the sole shareholder of an S corporation that earned $100,000 in 2010 and distributed $25,000 to Amos.Amos must recognize $25,000 as income from the S corporation in 2010.

Rachel owns rental properties.When Rachel rents to a new tenant,she usually requires the tenant to pay an amount in addition to the first month's rent.The additional amount serves as security for damages to the property and the tenant's failure to pay future rents.How should the payments be characterized (e.g. ,on lease documents)to minimize Rachel's current tax liability?

Under the original issue discount (OID)rules as applied to a three-year certificate of deposit:

Ted earned $100,000 during the current year.He paid April,his former wife,$40,000 in alimony.The $40,000 payment reduces Ted's AGI and increases April's AGI.

Jim and Nora,residents of a community property state,were married in early 2008.Late in 2008 they separated,and in 2010 they were divorced.Each earned a salary,and they received income from community owned investments in all relevant years.They filed separate returns in 2008 and 2009.

The annual increase in the cash surrender value of a life insurance policy:

Linda delivers pizzas for a pizza shop.On Wednesday,December 31,2010,Linda made several deliveries and collected $350 from customers.However,Linda forgot to turn in the proceeds for the day to her employer until the following Friday,January 2,2011.The pizza shop owner recognizes the income of $350 when he receives it from Linda in 2011.

A partner must include in gross income his or her share of the partnership's income for the year whether or not the partner withdraws anything from the partnership.