Question 1

Indicate which of the following statements is true.

Accepted Answer

A)  Dependent care plans can only be used to cover the costs of caring for a dependent child.
B)  Health care flexible spending accounts can be used to cover dentist fees.
C)  Public transportation may be covered by an employer-provided spending account, but parking cannot be covered.
D)  Dependent care accounts may include day care but not preschool. B

Question 2

Jerry and Sally were divorced under an agreement executed July 1, 2018.The terms of the agreement provide that Jerry will transfer to Sally his interest in a rental house worth $250,000 with a tax basis to Jerry of $80,000.What is the amount of the gain that must be recognized by Jerry on the transfer of the property and what is Sally's tax basis in the property after the transfer, respectively?

Accepted Answer

A)  $170,000 and $250,000
B)  $0 and $250,000
C)  $170,000 and $170,000
D)  $0 and $80,000
E)  None of the above D

Question 3

Robert works for American Motors.American Motors pays a $1,200 premium on Robert's health insurance in 2018.Robert has an operation on his big toe in 2018 that cost $7,200.The insurance company paid for $6,800 of it.Which one of the following is true for 2018?

Accepted Answer

A)  Robert must claim the $1,200 premium paid by his employer as income.
B)  Robert must claim the $6,800 paid by the insurance company for the operation as income.
C)  Robert must claim the $1,200 premium and the $6,800 insurance payment as income.
D)  None of these events are taxable on his 2018 return. D

Question 4

Amounts received by an employee as reimbursement for medical expenses under a policy provided by the taxpayer's employer are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 5

Laura and Leon were granted a divorce in 2013.In accordance with the decree, Leon made the following payments to Laura in 2018: Child support payments contingent on the age of the child
Annual cash payments, other than child support, specified as alimony in the divorce agreement How much should Laura include in her 2018 taxable income as alimony?

Accepted Answer

A)  $0
B)  $4,000
C)  $6,000
D)  $10,000
E)  None of the above

Question 6

If a taxpayer holding EE bonds makes an election with respect to the taxation of the bonds, how is the interest which accrues on the bonds, but is not paid, taxed each year?

Accepted Answer

The answer of If a taxpayer holding EE bonds makes...

Question 7

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2018 tax year.
a.Included
b.Excluded
-Reimbursement of hospital expenses from a health insurance plan

Accepted Answer

The answer of Indicate whether each of the items listed...

Question 8

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

Accepted Answer

The answer of Jim, a single individual, was unemployed for...

Question 9

In June of the current year, Rob's wealthy stepmother died and left him a stock portfolio worth $600,000.Before she died, she gave him a gift of $20,000 in cash.How much of these amounts, if any, are taxable to Rob? Why?

Accepted Answer

The answer of In June of the current year, Rob's...

Question 10

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?

Accepted Answer

The answer of Van is sick and tired of his...

Question 11

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2018 tax year.
a.Included
b.Excluded
-Inheritances

Accepted Answer

The answer of Indicate whether each of the items listed...

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Richard and Alice are divorced and under the terms of their written divorce agreement signed on December 30, 2011, Richard was required to pay Alice $1,500 per month of which $600 was designated as child support.He made 12 such payments in 2018.Additionally, Richard voluntarily paid Alice $1,200 per month for 12 months of 2018, no portion of which was designated as child support.Assuming that Alice has no other income, her tax return for 2018 should show gross income of:

Accepted Answer

A)  $0
B)  $7,200
C)  $10,800
D)  $18,000
E)  None of the above

Question 14

Andy landscaped his friend's house in return for a couch set and an HD television worth $8,000.How much income must Andy report on his tax return for his services?

Accepted Answer

The answer of Andy landscaped his friend's house in return...

Question 15

Richard, who retired on April 30, 2018, receives a monthly employee annuity benefit of $1,400 payable for life, beginning May 1, 2018.During his years of employment, Richard contributed $29,400 to the company's plan.Richard's age on May 1 is 66.Using the simplified method, how much of the $11,200 annuity payment received during 2018 may Richard exclude from gross income?

Accepted Answer

A)  $427
B)  $1,120
C)  $1,680
D)  $11,200
E)  None of the above

Question 16

Craig, a single taxpayer, received the following items in 2018: dividends of $450, wages of $32,000, child support from his ex-spouse of $400 per month, a new television worth $1,200 from a door prize at a conference he attended, a gift of $3,000 from Craig's parents, and $200 of interest on bonds issued by the State of Arizona.Craig put $4,000 of his wages into his employer's dependent care flexible spending account (the $4,000 has not been deducted from the $32,000 of wages listed previously).He also receives a reimbursement of $270 per month to pay for public transportation passes each month (the monthly reimbursement of $270 has not been deducted from the $32,000 of wages).Based on the above, what is Craig's gross income in 2018?

Accepted Answer

The answer of Craig, a single taxpayer, received the following...

Question 17

Unemployment compensation is fully taxable to the individual receiving the compensation.

Accepted Answer

A) True 
 B)False

Question 18

Interest earned on bonds issued by a state government is fully taxable.

Accepted Answer

A) True 
 B)False

Question 19

All of the following amounts are excluded from gross income, except:

Accepted Answer

A)  Tips and gratuities
B)  Child support payments
C)  Scholarship grants for tuition
D)  Gifts
E)  Veterans' benefits

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 2: Gross Income and Exclusions

Indicate which of the following statements is true.

Robert works for American Motors.American Motors pays a $1,200 premium on Robert's health insurance in 2018.Robert has an operation on his big toe in 2018 that cost $7,200.The insurance company paid for $6,800 of it.Which one of the following is true for 2018?

Amounts received by an employee as reimbursement for medical expenses under a policy provided by the taxpayer's employer are excluded from gross income.

If a taxpayer holding EE bonds makes an election with respect to the taxation of the bonds, how is the interest which accrues on the bonds, but is not paid, taxed each year?

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2018 tax year. a.Included b.Excluded -Reimbursement of hospital expenses from a health insurance plan

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

In June of the current year, Rob's wealthy stepmother died and left him a stock portfolio worth $600,000.Before she died, she gave him a gift of $20,000 in cash.How much of these amounts, if any, are taxable to Rob? Why?

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2018 tax year. a.Included b.Excluded -Inheritances

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

Andy landscaped his friend's house in return for a couch set and an HD television worth $8,000.How much income must Andy report on his tax return for his services?

Unemployment compensation is fully taxable to the individual receiving the compensation.

Interest earned on bonds issued by a state government is fully taxable.

All of the following amounts are excluded from gross income, except:

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