Exam 4: Gross Income: Concepts and Inclusions

If the taxpayer's method of measuring income is consistent with GAAP,it will be acceptable for tax purposes.

José,a cash method taxpayer,is a partner in J&T Accounting Services,a calendar year partnership.Under the partnership agreement,José is to receive 20% of the partnership's profits or losses.Each partner is allowed to withdraw $12,000 each month for his or her living expenses.José withdrew $144,000 during the year as his monthly draw in 2010.In February of each year,the partnership computes its net profit and decides how much should be retained in the business.The balance of the earnings is distributed to the partners in early March.In March 2010,José received $20,000 as a distribution of 2009 profits,and in March 2011,José received $30,000 as his share of distributed 2010 profits.The partnership earnings before partners' withdrawals for 2010 totaled $900,000.Compute José's gross income from the partnership for 2010.

Turner,a successful executive,is negotiating a compensation plan with his potential employer.The employer has offered to pay Turner a $720,000 annual salary,payable at the rate of $60,000 per month.Turner counteroffers to receive a monthly salary of $50,000 ($600,000 annually)and a $180,000 bonus in 5 years when Turner will be age 65.

Under the terms of a divorce agreement,Lanny was to pay his wife Joyce $2,500 per month in alimony and $500 per month in child support.For a twelve-month period,Lanny can deduct from gross income (and Joyce must include in gross income):

Samantha and her son,Brent,are cash basis taxpayers.Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000.On the date of the gift,September 30,2010,the accrued interest on the bond was $150.On December 31,2010,Brent collected $300 interest on the bond.Samantha is taxed on the $150 accrued interest,and Brent must include in gross income the $150 interest earned after the date of the gift.