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Exam 5: Gross Income and Exclusions

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Question 61

Multiple Choice

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Opal deducted $2,400 of state income taxes on her tax return last year. This year she received a state income tax refund of $170. What amount of the refund, if any, should Opal include in her gross income if last year her total itemized deductions exceeded the standard deduction by $350?

A) $2,050
B) $350
C) $180
D) $170
E) None of these - refunds of state income taxes are not included in gross income

F) C) and D)
G) B) and C)

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Question 62

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Hank is a U.S. citizen and is doing a three- to six-year assignment as a sales executive in Paris for a French company. The assignment began this year. Hank earned $109,500 working for the French company this year but only lived in France for 180 days (out of 365 days) . He will live full time in France next year. What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the United States (rounded to the nearest hundred dollars) ?

A) Hank can exclude his entire salary because he worked more than 330 days overseas.
B) $102,000
C) $52,200
D) $105,900
E) None of his salary can be excluded from gross income because Hank must reside overseas for the entire year.

F) All of the above
G) B) and C)

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Question 63

Multiple Choice

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Janine's employer loaned her $5,000 this year (interest-free) to buy a used car. If the federal interest rate was 4 percent, which of the following is correct?

Workers' compensation benefits are excluded from gross income.

U.S. citizens generally are subject to tax on all income whether it is generated in the United States or in foreign countries.

This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year. Mary included a total of $4,000 of state income taxes when she itemized deductions last year. What amount of the refund, if any, should Mary include in her gross income this year?

Teresa was married on November 1 of this year and on that day received numerous gifts from her extended family. Her grandfather presented Teresa with a check for $15,000; her uncle gave Teresa 1,000 shares of Ford stock worth $10 per share (the uncle purchased the shares for $25 each); and her aunt presented Teresa with $50,000 of corporate bonds. (Teresa received $1,500 of semiannual interest from the bonds on December 31 of this year.)Finally, Teresa's parents paid off $50,000 of her student loan debt, including $2,000 of accrued interest. What amount, if any, must Teresa include in gross income this year?

This year, Barney and Betty sold their home (sales price $750,000; cost $200,000) . All closing costs were paid by the buyer. Barney and Betty owned and lived in their home for 18 months. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

Jake sold his car for $2,400 in cash this year. He will realize a taxable gain of $1,000 if he purchased the car for $1,400.

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?

For tax purposes, unearned income is income that has not yet been realized.

This year Joseph joined the board of directors for a company. Besides his director's fees, Joseph received the following employee benefits: The stock bonus consisted of 5,000 shares of Bell stock given to Joseph as compensation. At the time of the transfer the stock was listed at $4 per share. What amounts, if any, should Joseph include in gross income this year?

Barter clubs are an effective means of avoiding realization for tax purposes.

Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son, Steve. This year Steve received checks in the amount of $62,000 for Dave's plumbing services. Which of the following is a true statement?

This year Zach was injured in an auto accident. As a result, he received the following payments. Zach received $18,000 of disability pay. Zach has disability insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $4,300 in disability premiums for Zach this year. Zach's hospital bills totaled $4,500 and were paid by his health insurance. Zach has health insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $6,250 in health insurance premiums for Zach this year. What amount must Zach include in his gross income?

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 percent below Moe's cost. This year Karl spent $3,600 to purchase groceries, costing Moe $4,000. The groceries were worth $6,000. What amount must Karl include in his gross income?

Loretta received $6,200 from a disability insurance policy that she purchased directly this year. Loretta must include all $6,200 in her gross income.

Jack and Jill are married. This year Jack earned $72,000, Jill earned $80,000, and they received $4,000 of interest income from a joint savings account. How much gross income would Jack report if he files married filing separately from Jill?

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?

A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.