Exam 5: Gross Income: Exclusions

Denny was neither bankrupt nor insolvent but was short of cash and could not make the mortgage payments on his personal residence in 2010.The bank that held the mortgage agreed to reduce the principal on the debt from $100,000 to $80,000 so that Denny's monthly mortgage payments could be reduced to a manageable amount.Denny also had a vacation home with a mortgage whose payments were beyond his means.The mortgage holder on the vacation home agreed to reduce the mortgage from $60,000 to $50,000.The value of the personal residence was $80,000 and the value of the vacation home was $45,000 at the dates of the debt reduction.

Worker's compensation benefits are excluded from gross income.

In December 2010,Todd,a cash basis taxpayer,paid $1,200 fire insurance for the calendar year 2011 on a building he held for rental income.Todd deducted the $1,200 insurance premiums on his 2010 tax return.He had $150,000 of taxable income that year.On June 30,2011,he sold the building and,as a result,received a $500 refund on his fire insurance premiums.As a result of the above:

The taxpayer is a Ph.D.student in accounting at State University.The student is paid $1,000 per month for teaching two classes.The total amount received for the year is $9,000.

Juan,was considering purchasing an interest in a tax-exempt bond fund for $100,000,when he discovered that the interest must be included on his state income tax return.The interest rate is 5%.His marginal Federal tax rate is 35%,and his marginal state income tax rate is 10%.Juan itemizes his deductions on his Federal income tax return.As an alternative,Juan can purchase a state bond (a "double-exempt bond")yielding 4.9% interest that is exempt from both Federal and state income tax.Which investment would yield the greater after-tax return?

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 $4,800 housing supplement in gross income.

The First Chance Casino has gambling facilities,a bar,a restaurant,and a hotel.All employees are allowed to obtain food from the restaurant at no charge during working hours.In the case of the employees who operate the gambling facilities,bar,and restaurant,60% of all of Casino's employees,the meals are provided for the convenience of the Casino.However,the hotel workers,demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work.Which of the following is correct?

Amber received a scholarship to be used as follows: tuition $6,000;room and board $4,000;and books and laboratory supplies $1,000.Amber is required to include only $4,000 in her gross income.

The Royal Motor Company manufactures automobiles.Employees of the company can buy a new automobile for Royal's cost plus 2%.The automobiles are sold to dealers at cost plus 20%.Generally,employees of Local Dealer,Inc. ,are allowed to buy a new automobile from the company at the dealer's cost.Officers of Local Dealer are allowed to use a company vehicle (for personal use)at no cost.

Matilda works for a company with 1,000 employees.The company has a hospitalization insurance plan that covers all employees.However,the employee must pay the first $3,000 of his or her medical expenses each year.Each year,the employer contributes $1,500 to each employee's health savings account (HSA).Matilda's employer made the contributions in 2009 and 2010,and the account earned $100 interest in 2010.At the end of 2010,Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy.As a result,Matilda must include in her 2010 gross income:

What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer. )

Peggy is an executive for the Tan Furniture Manufacturing Company.Peggy purchased furniture from the company for $7,000.The price Tan ordinarily charges a wholesaler is $8,500.The retail price of the furniture was $12,000,and Tan's cost was $8,000.The company also paid for Peggy's parking space in a garage near the office.The parking fee was $1,200 for the year.All employees are allowed to buy furniture at a discounted price comparable to that charged to Peggy.However,the company does not pay other employees' parking fees.Peggy's gross income from the above is:

Beverly died during the current year.At the time of her death,her accrued salary and commissions totaled $3,000 and were paid to her husband.The employer also paid the husband $35,000 which represented an amount equal to Beverly's salary for the year prior to her death.The employer had a policy of making the salary payments to "help out the family in the time of its greatest need." Beverly's spouse collected her interest in the employer's qualified profit sharing plan amounting to $30,000.As beneficiary of his wife's life insurance policy,Beverly's spouse elected to collect the proceeds in installments.In the year of death,he collected $8,000 which included $1,500 interest income.Which of these items are subject to income tax for Beverly's spouse?

The exclusion for health insurance premiums paid by the employer applies to:

Employers of the Family Bowling Alley allow their employees to bowl without charge after the employee's working hours and when there are adequate idle bowling lanes.Tom bowled 12 games during the month at no charge when the non-employee charge was $3.00 per game.

Nicole's employer pays her $150 per month towards the cost of parking near a railway station where Nicole catches the train to work.The employer also pays the cost of the rail pass,$75 per month.Nicole can exclude both of these payments from her gross income.

Because graduate teaching assistantships are awarded on the basis of academic achievement,the payments are generally scholarships and therefore are excluded from gross income.

Employers can provide numerous benefits to their employees and the employees are permitted to exclude the value of these benefits from gross income.What are the effects of the exclusions on:

Stuart owns 300 shares of Turquoise Corporation stock and 2,000 shares of Blue Corporation stock.During the year,Stuart received 150 shares of Turquoise as a result of a 1 for 2 stock split.The value of the shares received was $2,400.Stuart also received 100 shares of Blue Corporation stock as a result of a 5% stock dividend.Stuart did not have the option of receiving cash from Blue.The additional shares he received had a value of $3,600.Stuart's gross income from the receipt of the additional Turquoise and Blue shares is:

A scholarship recipient at City University must include in gross income the scholarship proceeds used to pay for: