Exam 2: Gross Income and Exclusions

The receipt of an inheritance is excluded from the taxable income of the recipients.

If an annuitant, whose annuity starting date was January 1, 2001, dies before recovering his or her investment in the annuity, any unrecovered investment is recognized as a loss on the annuitant's tax return for the year of death.

The value of lodging provided to a professor to enable him to live near the campus is excluded from gross income.

Group term life insurance premiums paid by an employer for insurance amounts less than $50,000 must be included in the employee's income.

Cynthia, age 64, retired in June. Starting in July, Cynthia received $2,000 per month from an annuity. She has contributed $260,000 to the annuity. Her life expectancy is 20 years. ​ a. How much is excluded from income using the simplified method? Per the formula, for ages 61-65, use 260 as the factor to divide by. ​ 1. Enter total amount received this year 2. Enter cost in plan at the annuity starting date 3. Factor at annuity starting date 260 4. Divide line 2 by line 3 5. Multiply line 4 by the number of monthly payments this year 6. Amount, if any, recovered tax free in prior years 7. Subtract line 6 from line 2 8. Enter the smaller of line 5 or 7 9. Taxable amount this year. Subtract line 8 from line 1 ​ ​ a. How much is excluded from income using the simplified method? Per the formula, for ages 61-65, use 260 as the factor to divide by.​

Nicole is a student at USB Law; she receives a $52,000 scholarship for 2014. Of the $52,000, $40,000 is used for tuition, $7,000 is used for books, and $5,000 is used for room and board. How much of the scholarship is excluded from taxable income for Nicole in 2014?

Jim, a single individual, was unemployed for a few months during 2014. During the year, he received $3,600 in unemployment compensation payments. How much of his unemployment compensation payments must be included in gross income?

A gift received from a financial institution for opening a bank account is not taxable income to the recipient.

Which taxpayer would benefit the most from a tax-free municipal bond compared to a taxable bond?

Van is sick and tired of his job. His doctor certifies that his health may be compromised if he continues to work at his current job. He sells his life insurance policy to Life Settlements, Inc. for $50,000 so he can take a break from work. He has paid $10,000 so far for the policy. How much of the $50,000 must Van include in his taxable income?

Tim receives a $25,000 gift from his parents for a down payment on a house. They know he can not buy a house without their help. They write "gift" in the memo line of the check. How much of the gift is taxable to Tim?

Ordinarily life insurance proceeds are excluded from gross income. Why would they be taxable if the policy had been transferred for valuable consideration, prior to the death of the insured?

Indicate which of the following statements is true.

A taxpayer in the 33 percent tax bracket invests in a New York City Bond paying 5 percent interest. What taxable interest rate would provide the same after-tax return?

State whether each of the following is taxable or nontaxable. a. Susan won a jackpot of $50,000 gambling at a casino. b. Sarah received a Christmas ham from her employer. c. Jonathan won a car in a supermarket raffle valued at $25,000. d. Gary received a scholarship for tuition of $5,000 a year. e. Eric is given lodging valued at $1,000 a month on the oil rig where he is employed since it is impossible for Eric to go home during the period of time he is assigned to work on the rig.

Jack is a lawyer and Jeri is a child psychologist. Jack prepares Jeri's estate planning at no charge and Jeri agrees to counsel Jack's daughter six times at no charge in return for the estate planning. The value of the estate planning is $1,000 and the value of the therapy sessions is $1,000. a. How much income does Jack have? Why? b. How much income does Jeri have? Why?

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2014 tax year. ​ a.Included b.Excluded -Child support payments

During 2014, Margaret and John received $24,000 in Social Security benefits. The amount of their adjusted gross income for the year before any Social Security income was $140,000 and they received $19,000 in tax-exempt income. ​ Explain the treatment of their Social Security income for tax purposes and the likely percentage of the Social Security income that will be taxable to Margaret and John.

Geoff is a company president who has had a very good year at work. The owner of the company is pleased and gives him a gift of $50,000 at the end of the year. The owner writes "gift" in the memo section of the check. How much of the gift is taxable to Geoff?

Steve worked as a tech supervisor for a computer company. In September of 2014, he was laid off. He was paid unemployment compensation for the rest of the year totaling $7,000. Which of the following is true?