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Exam 5: Gross Income and Exclusions

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Question 41

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Identify which of the items below help determine which taxpayer must recognize earned income:

A) Residence in a community property law state.
B) Assignment of income.
C) Residence in a common law state.
D) Residence in a community property law state and assignment of income.
E) All of the choices are correct.

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Question 42

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Anna received $15,000 from life insurance paid upon the death of her grandmother.Anna can exclude the entire amount of the life insurance from her gross income.

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Question 43

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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,which 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 U.S? (Round your answer to the nearest one-hundred dollars) .

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Kevin provided services to several clients this year who paid with different types of property.Which of the following payments is not included in Kevin's gross income?

Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives.Later this year Harold will recover the remainder of his cost of the annuity.Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?

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

J.Z.(single taxpayer)is retired and received $10,000 of Social Security benefits this year.How much of the $10,000 Social Security benefits is taxable if his only other income was $28,000 of pension income?

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

This year Joseph joined the board of directors.Besides his director's fees,Joseph received the following employee benefits: $\begin{array} { l r } \text { Salary } & \$ 204,000 \\\text { Contribution to qualified pension plar1 } & 25,000 \\\text { Qualified health insurance prerniurns } & 8,000 \\\text { Stock bonus } & 20,000 \\\text { Arrual director's fee } & 15,000 \\\text { Group-tern life insurance premiurns (face } = \$ 40,000 ) & 1,800\end{array}$ 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?

Interest earned on a Federal Treasury bond is excluded from gross income (for federal tax purposes).

This year Barney purchased 500 shares of Bell common stock for $20 per share.At year-end the Bell shares were only worth $2 per share.What amount can Barney deduct as a loss this year?

Gross income includes all income realized during the year.

This year Kelsi received a $1,900 refund of state income taxes that she paid last year.Last year Kelsi claimed itemized deductions of $7,400 including $2,800 of state income taxes.How much of the refund,if any,must Kelsi include in gross income if the standard deduction last year was $6,300?

Cyrus is a cash method taxpayer who reports on a calendar-year.Last year Cyrus received salary of $88,000 and at year-end his employer announced that Cyrus would receive an additional year-end bonus of $10,000 in cash and a new TV worth $2,000.Cyrus didn't receive his bonus check until January of this year and the TV didn't arrive until March of this year.Determine the amount Cyrus should include in his gross income for last year.

Wherewithal-to-pay represents the principle that a realized transaction should require a taxpayer to sell other assets in order to pay income taxes.

Joyce's employer loaned her $50,000 this year (interest-free) to buy a new car.If the federal interest rate was 3%,which of the following is correct?

When a taxpayer sells an asset,the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Brad was disabled for part of the year and he received $11,500 of benefits from a disability insurance policy purchased by Brad's employer.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.

Brenda has $15,000 in U.S.Series EE saving bonds and she is considering whether to cash in the bonds.Under what conditions can Brenda exclude the interest on the savings bonds from her gross income?