Question 1

Alimony is

Accepted Answer

Alimony is deductible by the payor and is included in income by the payee. This ensures that the payment is taxed at the individual's marginal tax rate.

Question 2

Which of the following is not included in gross income when received?

Accepted Answer

Refundable security deposits are not included in gross income as they are considered a return of the taxpayer's own funds.

Question 3

Thomas and Sally were divorced last year. As a result, Thomas must pay Sally alimony of $100,000 per year starting this year and relinquish the house and car with a combined value of $170,000 and a combined cost basis of $155,000. The house and car are given as a property settlement. As a result of these transactions Thomas has a deduction of

Accepted Answer

A)Only the $100,000 alimony is a "for AGI" deduction for Thomas.

Question 4

Mark purchased 2,000 shares of Darcy Corporation for $13,200. This year, Darcy declared a 10% nontaxable stock dividend, and Mark received 200 shares. After the dividend Mark's per share basis will be

Accepted Answer

The answer of Mark purchased 2,000 shares of Darcy Corporation...

Question 5

With respect to alimony and property settlements in a divorce or separation, all of the following are true with the exception of

Accepted Answer

D)Alimony is taxable to the payee and deductible by the payor; a property settlement has no tax consequences.

Question 6

Natasha is a single taxpayer with a 28% marginal tax rate. She received distributions of earnings this year as follows: $\begin{array}{|l|l|}
\hline\text { CE Corp, a C corporation } & \$ 1,000 \
\hline \text { SE Corp, an S corporation } & \$ 2,000 \
\hline \text { Paris Corp, a foreign } & \
\text { corporation } &\$ 3,000 \\hline
\end{array}$ How much of the $6,000 distribution will be taxed at the 15% tax rate?

Accepted Answer

Dividends from a C corporation like CE Corp are typically qualified dividends and taxed at a lower rate of 15% for someone in Natasha's tax bracket. Distributions from an S corporation and foreign corporations may not qualify for the 15% rate.

Question 7

Distributions from corporations to the shareholders in a nonliquidating distribution will usually be classified as a dividend up to the amount of the corporation's

Accepted Answer

Nonliquidating distributions are distributions not in exchange for the shareholder's stock. Under this type of distribution, the corporation must first distribute its earnings and profits to its shareholders before it can make a return of capital distribution. Therefore, distributions will usually be classified as a dividend up to the amount of the corporation's earnings and profits.

Question 8

As a result of a divorce, Matthew pays Jasmine alimony of $75,000 in year one and $25,000 per year in subsequent years. How much is deductible by Matthew in year one?

Accepted Answer

Only the alimony paid in the first year as a lump sum is deductible, which is $75,000. Alimony payments made in subsequent years are not deductible.

Question 9

Bridget owns 200 shares of common stock of Jones Corporation. During the current year, Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned. The stock has a fair market value of $10 per share. Bridget chooses to take the additional shares of stock. How much income does Bridget have from the stock dividend?

Accepted Answer

By choosing to take the additional shares of stock, Bridget will receive 200/5 = 40 additional shares of common stock.

The fair market value of each share is $10, so the total value of the additional shares is 40 x $10 = $400.

Since Bridget did not receive any cash dividends, her income from the stock dividend is $400. Therefore, the correct answer is C.

Question 10

In 2016, Richard, a single taxpayer, has adjusted gross income of $40,150. His AGI includes $4,000 of qualified dividends. Richard has no dependents and does not itemize deductions. What is his 2016 federal income tax?

Accepted Answer

The answer of In 2016, Richard, a single taxpayer, has...

Question 11

Tarik, a single taxpayer, has AGI of $55,000 which includes $1,000 of qualified dividends. Tarik has $7,000 of itemized deductions. What is his 2016 federal income tax?

Accepted Answer

First, Tarik's taxable income must be calculated:
AGI: $55,000
- Standard deduction: $6,300
- Personal exemption: $4,050
- Itemized deductions: $7,000
Taxable income: $37,650

Next, Tarik's tax liability must be calculated using the tax brackets for single taxpayers in 2016:
10% on income up to $9,275: $927.50
15% on income between $9,276 and $37,650: ($37,650 - $9,276) x 0.15 = $4,847.40

To this amount, Tarik's qualified dividends are taxed at a special lower tax rate:
Qualified dividends: $1,000
Tax on qualified dividends (at 15%): $150

Finally, Tarik's total tax liability is calculated by adding up the amounts calculated above:
Tax on ordinary income: $927.50 + $4,847.40 = $5,774.90
Tax on qualified dividends: $150
Total tax liability: $5,924.90

Therefore, the correct answer is B.

Question 12

The requirements for a payment to be considered as alimony include all of the following except

Accepted Answer

The answer of The requirements for a payment to be...

Question 13

Under the terms of their divorce agreement executed in August of this year, Clint transferred Beta, Inc. stock to his former wife, Rosa, as a property settlement. At the time of the transfer, the stock had a basis to Clint of $55,000 and a fair market value of $68,000. Rosa subsequently sold the stock for $75,000. What is the tax consequence of first the stock transfer and then the stock sale to Rosa?

Accepted Answer

Under IRS rules, transfers of property between spouses or incident to divorce are generally not taxable events. Therefore, Rosa's income from the stock transfer is $0. When Rosa sells the stock, her basis is the same as Clint's, $55,000. Thus, her capital gain is $75,000 - $55,000 = $20,000.

Question 14

Tyler has rented a house from Camarah since last year. The rent is usually $1,200 per month, but Camarah reduced the monthly rent down to $200 for all twelve months this year in exchange for Tyler putting in an inground pool in the backyard. The improvement has a fair market value of $20,000. How much total rental income must Camarah report this year?

Accepted Answer

The answer of Tyler has rented a house from Camarah...

Question 15

Under the terms of their divorce agreement, Humphrey transferred Corporation H stock to his former wife, Greta as a property settlement. At the time of the transfer, the stock had a basis to Humphrey of $40,000 and a fair market value of $55,000. What is the tax consequence of this transaction to Humphrey, and what is Greta's basis in the Corporation H stock?

Accepted Answer

Transferring property as part of a divorce settlement is a non-taxable event under §1041. Therefore, Humphrey will have no gain or loss on the transfer. Greta's basis in the Corporation H stock will be the same as Humphrey's basis at the time of the transfer, which is $40,000.

Question 16

Julia owns 1,000 shares of Orange Corporation. This year, Orange declared a 10% stock dividend. There was no option for shareholders to receive cash. When Julia received 100 shares of Orange stock, it had a fair market value of $50 a share. How much income does Julia have from the dividend?

Accepted Answer

The answer of Julia owns 1,000 shares of Orange Corporation....

Question 17

Child support is

Accepted Answer

The answer of Child support is
...

Question 18

Which of the following is least likely to result in a constructive dividend?

Accepted Answer

The answer of Which of the following is least likely...

Question 19

Hoyt rented office space two years ago to Harris, receiving the first and last months' rent plus a security deposit of $1,000. In early January of this year, Harris moves and Hoyt refunds $250 of the deposit and keeps the remainder to cover $500 which is spent for repairs to the office space and one week of unpaid rent that amounts to $250. How would this information be reflected on Hoyt's tax return this year?

Accepted Answer

The answer of Hoyt rented office space two years ago...

Question 20

Carolyn, who earns $400,000, is required to pay John, her ex-husband, $200,000 as part of the property settlement as a result of their divorce. In turn, John transfers stock worth $50,000 to Carolyn. What is the amount of Carolyn's adjusted gross income for the year?

Accepted Answer

C)Neither the transfer of cash to John nor the transfer of stock to Carolyn are taxable events.Thus,only the $400,000 salary is included in Carolyn's adjusted gross income.

Quiz 18: Gross Income: Inclusions