Exam 2: Gross Income and Exclusions

An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9 percent per year and a municipal bond which pays an interest rate of 7.9 percent per year. The investor is in the 15 percent tax bracket. Which bond will give the investor a higher after-tax interest rate and for which reason?

In regards to Social Security benefits:

Kim earned $30,000 from Pfizer before she was laid off. She then collected $7,000 of unemployment benefits. Finally, Kim received a $12,500 scholarship for tuition so she could return to college to earn a microbiology degree. How much does Kim need to report as income on her tax return?

Payments made to a qualified retirement plan by an employer are considered part of the employee's investment in the contract for calculation of the annuity exclusion ratio.

Interest income received by a cash basis taxpayer is generally reported in the tax year it is received.

Peter is required by his divorce agreement to pay alimony of $4,000 a month and child support of $6,000 a month to his ex-wife Stella. What is the tax treatment of these two payments? To Peter? To Stella?

Curt's tax client, Terry, is employed at a large company that offers medical flexible spending accounts to its employees. Terry must decide at the beginning of the year whether he wants to put as much as $2,500 of his salary into the medical flexible spending account. Terry has excellent insurance through the company and is very healthy. He does not expect to have any medical expenses during the year. Terry does not itemize deductions. Should Curt recommend that Terry put the maximum in his medical flexible spending account? Why or why not?

Which of the following gifts or prizes would be considered taxable income to the person receiving the gift?

Noncash items received as income must be included in income at their fair market value.

Rob is 8 years old and won a sports car valued at $30,000 in a drawing at Disneyland. How much income, if any, must Rob report on his 2014 tax return? Why?

Elsie received the following distributions from Virginiana Mutual Fund for the calendar year 2014: Elmer, Elsie's husband, did not own any of the Virginiana Mutual Fund shares, but he did receive $1,600 in interest on a savings account at the Moss National Bank. Elmer and Elsie filed a joint income tax return for 2014. What portion of the distributions from Virginiana Mutual Fund is taxable as ordinary income on their 2014 individual income tax return?

Karina receives a scholarship of $10,000 to a college. She is also given a job which pays $5,000 a year to help with her expenses. $7,000 of the scholarship is earmarked for tuition and $3,000 is for room and board. How much of the money from the scholarship and the job are taxable to Karina?

If a life insurance policy is transferred to the insured's partnership for valuable consideration, the insurance proceeds are taxable when received by the partnership.

Under a divorce agreement executed in 2014, periodic payments of either cash or property must be made at regular intervals to be deductible as alimony.

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 -Reimbursement of hospital expenses from a health insurance plan

Dividend income arising from stock received as a gift is excluded from gross income since the dividends are considered part of the gift.

Mary received the following items during 2014: What is the total amount of the above items that must be included in Mary's 2014 gross income?

Elmore receives a rental property as an inheritance from his grandmother. The rental is worth $500,000 and Elmore collected rental income of $24,000 during the year. For the year, how much is Elmore's gross income as a result of the inheritance?

Marco and his family are covered by his company's health insurance plan. The health insurance costs his company $2,500 a year. During the year, Marco's daughter is diagnosed with a serious illness and the health insurance pays $25,000 for treatment. How much of the insurance and treatment costs are taxable to Marco?

Under the terms of a property settlement executed during 2014, Cindy transferred a house worth $350,000 to her ex-husband, Carl. The property has a tax basis to Cindy of $300,000. a.How much taxable gain or loss must be recognized by Cindy at the time of the transfer? b.What is Carl's tax basis in the property he received from Cindy?