Exam 5: Gross Income and Exclusions

Nate is a partner in a partnership that received $5,000 of interest income this year. Nate's share of the interest is $1,000, and he should report this income on his individual return as:

Pam recently was sickened by eating spoiled peanut butter. She successfully sued the manufacturer for her medical bills ($3,700), her emotional distress ($6,000 - she now fears peanut butter), and punitive damages ($44,000). What amount must Pam include in her gross income?

Alex is 63 years old and retired. This year Alex won $212,200 in the state lottery. Alex also received $20,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 15 years, for $157,500. Alex received $10,000 in Social Security benefits for the year. Calculate Alex's gross income.

Heidi retired from GE (her employer) at age 56. At the end of the year, when she was 56 years of age, Heidi received a distribution from her GE sponsored 401(k) account. Because Heidi was not at least 59½ years of age at the time of the distribution, she must pay tax on the full amount of the distribution and a 10 percent penalty on the full amount of the distribution.

Karl works at Moe's grocery. This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost. This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000. What amount must Karl include in his gross income?

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

When the wash sale rules apply, the realized loss is:

Brad was disabled for part of the year and he received $11,500 of benefits from a disability plan purchased by Brad's employer as a nontaxable fringe benefit. Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

Kathryn is employed by Acme and they have been very pleased with her performance this year. In December, Kathryn was granted an extra week off with pay (pay for the week totaled $2,000). In addition, Kathryn was given tickets to a football bowl game worth $800 (Kathryn didn't use the tickets - she hates football). At year-end Kathryn was allowed to order new office furniture and Acme told her to take the old office furniture home. The office furniture was originally purchased for $7,000, but it was fully depreciated and only worth about $1,000. Determine the amount Kathryn should include in her gross income.

The maximum amount of net capital losses individuals may deduct against their ordinary income per year is:

Which of the following statements about alimony payments is true?

Hillary is a cash-basis calendar-year taxpayer. During the last week of December she received a letter containing a $5,000 check for services. Which of the following is a true statement?

Which of the following is a true statement about the first payment received from a purchased annuity?

The tax law defines alimony to include transfers of property (but not cash) between former spouses.

The date on which stock options are given to the employee is called the exercise date.

Gross income includes

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

This year Larry received the first payment from an annuity that promises to pay him $3,000 per month for the rest of his life. The IRS tables indicate that given Larry's age, he should expect to receive 310 monthly payments. The cost of the annuity to Larry was $620,000. How much of the first $3,000 payment should Larry include in gross income?

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

Aubrey and Justin divorced on June 30 of this year. Through June 30 Aubrey earned $62,000 of salary and Justin earned $45,000. For the year Aubrey reported a total salary of $130,000 and Justin earned a total salary of $88,000. Aubrey and Justin live in a community property state. How much income earned will Aubrey report on her tax return for this year?