Question 1

As a new benefit to employees, the Acme Company is providing a dining allowance every Tuesday for use in one of the twenty restaurants that they own around town. Should this benefit be included in the wages of the employees?

Accepted Answer

The answer of As a new benefit to employees, the...

Question 2

Payments made by an employer for health insurance on behalf of an employee are considered income to the employee at the time the payments are made.

Accepted Answer

Employer payments for health insurance on behalf of an employee are generally not considered taxable income to the employee. These payments are typically made on a pre-tax basis, reducing the employee's taxable income.

Question 3

A taxpayer in the 28 percent tax bracket invests in a City of San Diego bond paying 8 percent interest. What taxable interest rate would provide the same after-tax return?

Accepted Answer

The answer of A taxpayer in the 28 percent tax...

Question 4

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

Accepted Answer

The answer of The value of lodging provided to a...

Question 5

Which of the following may be excluded from income?

Accepted Answer

Payment for the loss of an arm is considered a nontaxable compensation for physical injuries. Premiums for health insurance paid by the employer are nontaxable fringe benefits. Reimbursement from the insurance company for a physical examination is not considered taxable income as long as it is for medical expenses. Therefore, all of the above are excluded from gross income.

Question 6

If an employer claims a business deduction for group health insurance premiums paid on behalf of his employees, the amount must be included in the employees' gross income.

Accepted Answer

Group health insurance premiums paid by the employer are generally excluded from the employees' gross income, as long as the coverage is provided under a qualified plan. This exclusion applies to the premiums paid by the employer as well as any contributions made by the employee towards the premium.

Question 7

Joey is a single taxpayer. Joey's employer pays $1,800 per year for his health insurance. During the year, Joey had medical expenses of $2,500 and the insurance company reimbursed him for the full $2,500. How much of the above amounts, if any, must be included in Joey's gross income? Why?

Accepted Answer

The answer of Joey is a single taxpayer. Joey's employer...

Question 8

In which of the following cases may the employee exclude the meals and/or lodging:

Accepted Answer

The headmaster at a boarding school is required to be on campus all night, making it necessary to provide meals and lodging. These expenses can be excluded from the employee's income. The other options do not qualify for exclusion of meals and/or lodging.

Question 9

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

This is true according to the IRS guidelines. Medical reimbursements up to a certain limit are non-taxable and can be excluded from gross income.

Question 10

Mable is a wealthy widow who has come to you for tax advice. She is in the 35 percent tax bracket. She has a choice between investing in a high-quality municipal bond paying 3.5 percent or a high-quality corporate bond paying 7 percent. From a tax standpoint, which investment would you advise her to make and why?

Accepted Answer

The answer of Mable is a wealthy widow who has...

Question 11

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

Accepted Answer

Interest earned on bonds issued by a state government is generally exempt from federal income taxes, and may also be exempt from state and local taxes if the bondholder resides in the issuing state.

Question 12

Cash allowances for meals or lodging generally must be included in the employee's income.

Accepted Answer

According to IRS regulations, cash allowances for meals or lodging are considered taxable income and must generally be included in the employee's income.

Question 13

Anthony is a marine biologist who spends months living on a boat in the ocean studying the impact of runoff water a hundred miles off the coast as a part of his job. Which of the following sentences is the most accurate?

Accepted Answer

Lodging is usually not excluded from income, so option A is incorrect. However, since Anthony's job requires him to live on a boat, he may be able to exclude the value of meals and lodging from his income as a qualified transportation fringe benefit. Additionally, the fuel used to power the boat may be excluded from his income as a working condition fringe benefit. Therefore, options B and C are both potentially correct, making option D the most accurate choice.

Question 14

Bob is a machinist in a remote Alaskan crab-freezing plant. The plant is accessible only by boat or airplane and has no available lodging for rent. Bob's employer provides him with lodging at the plant and pays for all of his electricity, gas, and other utilities, valued at $700 per month. Is the value of the lodging taxable to Bob? Explain.

Accepted Answer

The answer of Bob is a machinist in a remote...

Question 15

Robert works for American Motors. American Motors pays a $1,200 premium on Robert's health insurance in 2015. Robert has an operation on his big toe in 2015 that cost $7,200. The insurance company paid for $6,800 of it. Which one of the following is true for 2015?

Accepted Answer

None of these events are taxable on his 2015 return. The premium paid by the employer for Robert's health insurance is not taxable income to Robert. Additionally, the payment made by the insurance company to cover Robert's medical expenses is not taxable income to Robert. Therefore, none of these events need to be reported on Robert's tax return.

Question 16

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?

Accepted Answer

The answer of A taxpayer in the 33 percent tax...

Question 17

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?

Accepted Answer

The answer of An investor is comparing the following two...

Question 18

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

Accepted Answer

The answer of Which taxpayer would benefit the most from...

Question 19

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?

Accepted Answer

The answer of Kim earned $30,000 from Pfizer before she...

Question 20

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?

Accepted Answer

The answer of Marco and his family are covered by...

Quiz 2: Gross Income and Exclusions