Question 1

Payments received under workers' compensation acts are taxable to the recipient.

Accepted Answer

Payments received under workers' compensation acts are not taxable to the recipient under federal law. Some states may have different rules regarding taxation of workers' compensation benefits.

Question 2

Welfare payments received by a taxpayer must be reported in income.

Accepted Answer

Welfare payments are generally not taxable and do not need to be reported as income on a taxpayer's tax return.

Question 3

The cost of holiday turkeys distributed to employees is included in the employees' income.

Accepted Answer

The cost of holiday turkeys or other nominal value holiday gifts given to employees by employers is generally considered a de minimis fringe benefit, which is excluded from the employees' income for tax purposes.

Question 4

Employer-paid premiums on group-term life insurance in excess of $50,000 coverage are taxable to the employees based on the cost of the excess.

Accepted Answer

Employer-paid premiums on group-term life insurance in excess of $50,000 coverage are taxable to the employees based on the cost of the excess.

Question 5

If an employee receives a prize or award from his or her employer,the award is included in W-2 income.

Accepted Answer

Any prizes or awards received by an employee from their employer are considered taxable income and must be reported on their W-2 form.

Question 6

Taxpayers are not required to "impute interest" on a deferred payment contract for which no interest,or a low rate of interest,is stated.

Accepted Answer

Taxpayers are often required to "impute interest" on deferred payment contracts that have no interest or a low rate of interest, according to the IRS rules. This is to ensure that the lender reports some amount of interest income for the use of their money, and the borrower may have a corresponding interest expense deduction.

Question 7

Discounts provided to employees for food by a restaurant owner are not taxable if the discounts do not exceed the gross profit percentage of the business.

Accepted Answer

According to the IRS, employee discounts for food provided by a restaurant owner are not taxable if they don't exceed the gross profit percentage of the business. This means that if the discount is less than or equal to the profit margin of the restaurant, it is not taxable income for the employee.

Question 8

A taxpayer does not have to report part of an original issue discount (OID)as income every year.

Accepted Answer

A taxpayer must report a portion of the original issue discount (OID) as income each year, as it is considered to be earned interest over the life of the bond, even if no payment is received until maturity.

Question 9

Receipt of property or services will trigger income recognition.

Accepted Answer

According to generally accepted accounting principles (GAAP), revenue should be recognized when the property or services have been received and there is evidence of an arrangement for payment.

Question 10

A de minimis benefit is one whose value is so small that keeping track of which employees received the benefit is administratively impractical.

Accepted Answer

This is the definition of a de minimis benefit according to the IRS. Examples include occasional snacks, birthday or holiday gifts, and employee picnics.

Question 11

A taxpayer must report in income imputed interest on a loan made below market interest rate.

Accepted Answer

According to the IRS, if a loan is made below market interest rate, the borrower may receive an imputed interest benefit and the lender may have to report the imputed interest as income on their tax return. This imputed interest is calculated using the applicable federal rate (AFR) for the loan term and is considered taxable income for the lender.

Question 12

If Alex,an attorney,agrees to provide legal services to a friend in exchange for the friend agreeing to fix his car,Alex and his friend will have to report income on this transaction at fair market value.

Accepted Answer

In this transaction, both parties are receiving a benefit in exchange for their services. Therefore, they will need to report the fair market value of the legal services and the car repairs as income on their tax returns.

Question 13

If a taxpayer is economically better off because of a transaction,the person must normally record income.

Accepted Answer

This is because according to the basic principle of taxation, any increase in wealth or income is subject to taxation unless there is an exception or exclusion provided by the tax code. Thus, if a taxpayer is economically better off due to a transaction, it is usually considered taxable income that should be recorded on their tax return.

Question 14

If a person sells his or her car to a friend for a note receivable,this person has income that needs to be reported.

Accepted Answer

When a person sells a car and receives a note receivable in exchange, they have still received a form of payment that represents income which must be reported for tax purposes.

Question 15

When an individual's marginal ordinary income tax rate is 25% and less than 39.60%,the taxation rate on qualified dividends is 15%.

Accepted Answer

The statement is true. For individuals with a marginal ordinary income tax rate of 25% or less, the taxation rate on qualified dividends is 15%. However, for individuals with a marginal ordinary income tax rate of 39.60% or more, the taxation rate on qualified dividends is 20%.

Question 16

In general,an individual must recognize income on his or her tax return if the transaction has economic benefit,the transaction has reached a conclusion and the income from the transaction is tax-exempt income.

Accepted Answer

Income must be recognized if it has economic benefit and has reached a conclusion, but tax-exempt income (such as certain municipal bond interest) does not need to be recognized on a tax return as taxable income.

Question 17

Payments received by a taxpayer for unemployment compensation are not taxable.

Accepted Answer

Unemployment compensation is considered taxable income by the IRS and must be reported on your federal tax return.

Question 18

Receipt of property or services does not trigger income recognition for tax purposes.

Accepted Answer

Receipt of property or services can trigger income recognition for tax purposes, depending on the specific circumstances and applicable tax laws.

Question 19

The initial original issue discount (OID)on a bond is equal to the difference between the acquisition price and the maturity value.

Accepted Answer

The answer of The initial original issue discount (OID)on a...

Question 20

Banks and credit unions report interest income to taxpayers on Form 1099-INT.

Accepted Answer

Banks and credit unions are required to report interest income to taxpayers on Form 1099-INT. This form is used to report the amount of interest earned on deposit accounts, such as savings accounts, checking accounts, and certificates of deposit, as well as other types of interest income, such as interest earned on loans or bonds. Taxpayers must report this income on their tax return and pay taxes on the amount earned.

Quiz 3: Gross Income: Inclusions and Exclusions

Payments received under workers' compensation acts are taxable to the recipient.

Welfare payments received by a taxpayer must be reported in income.

The cost of holiday turkeys distributed to employees is included in the employees' income.

Employer-paid premiums on group-term life insurance in excess of $50,000 coverage are taxable to the employees based on the cost of the excess.

If an employee receives a prize or award from his or her employer,the award is included in W-2 income.

Taxpayers are not required to "impute interest" on a deferred payment contract for which no interest,or a low rate of interest,is stated.

Discounts provided to employees for food by a restaurant owner are not taxable if the discounts do not exceed the gross profit percentage of the business.

A taxpayer does not have to report part of an original issue discount (OID)as income every year.

Receipt of property or services will trigger income recognition.

A de minimis benefit is one whose value is so small that keeping track of which employees received the benefit is administratively impractical.

A taxpayer must report in income imputed interest on a loan made below market interest rate.

If Alex,an attorney,agrees to provide legal services to a friend in exchange for the friend agreeing to fix his car,Alex and his friend will have to report income on this transaction at fair market value.

If a taxpayer is economically better off because of a transaction,the person must normally record income.

If a person sells his or her car to a friend for a note receivable,this person has income that needs to be reported.

When an individual's marginal ordinary income tax rate is 25% and less than 39.60%,the taxation rate on qualified dividends is 15%.

In general,an individual must recognize income on his or her tax return if the transaction has economic benefit,the transaction has reached a conclusion and the income from the transaction is tax-exempt income.

Payments received by a taxpayer for unemployment compensation are not taxable.

Receipt of property or services does not trigger income recognition for tax purposes.

The initial original issue discount (OID)on a bond is equal to the difference between the acquisition price and the maturity value.

Banks and credit unions report interest income to taxpayers on Form 1099-INT.