Question 1

Jan has been assigned to the Rome office of ABC Corporation.She arrives in Rome on November 1,2016 and does not return to the United States until March 5,2018.During her stay in Rome,Jan earned $112,000 in 2017.Jan may exclude

Accepted Answer

C)The allowable exclusion is the lower of $102,100 or the taxpayer's earned income ($112,000).

Question 2

After he was denied a promotion,Daniel sued his employer claiming sex discrimination.He was awarded $20,000 to cover medical bills he incurred because of the related emotional distress,$80,000 to punish his employer for discrimination,and $50,000 to compensate him for lost wages.What is the amount that must be included in Daniel's gross income for the year?

Accepted Answer

The answer of After he was denied a promotion,Daniel sued...

Question 3

Jillian has just accepted an offer from accounting firm for a full-time position after completion of her master's degree.In addition to paying a high salary and premiums on the basic health insurance policy,the firm will pay the benefits listed below.Which of the following benefits can be excluded (assume the benefits are provided on a non-discriminatory basis to all employees)?

Accepted Answer

C)No exclusion of income is allowed unless specifically provided in the law.Only the eyecare coverage has a relevant exclusion as it would be considered medical and health premiums.

Question 4

Jeremy,an American citizen,earned $200,000 during 2017 while employed in Switzerland.Jeremy is entitled to the maximum foreign-earned income exclusion.Jeremy also incurred $40,000 of deductible expenses attributable to the foreign-earned income.Jeremy may deduct how much in expenses?

Accepted Answer

C)($102,100/$200,000)× $40,000 = $20,420 is attributable to non-taxable income and may not be deducted.Therefore,Jeremy may deduct $40,000 - $20,420 = $19,580.

Question 5

In September of 2017,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 17 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.How much of the gain will she recognize?

Accepted Answer

A)If the proceeds from the sale of small business stock held more than 6 months are reinvested in other small business stock within 60 days of the sale,no gain is recognized.

Question 6

For a taxpayer who is not insolvent nor under bankruptcy proceedings,the discharge of debt is generally

Accepted Answer

A)If the taxpayer is solvent at the time of cancellation of debt,discharge of indebtedness is generally includible in gross income.

Question 7

Mark,a cash-basis taxpayer,died on September 30,2017.His wife,Charlotte,provides you with the following information.
From January 1,2017 until his death,Mark received a salary of $35,000.Charlotte received a salary of $68,000 during 2017.Mark had earned commissions of $20,000 which Charlotte received after his death.Charlotte was the beneficiary of a $100,000 whole life policy purchased by Mark and a $50,000 group term life insurance policy purchased by Mark's employer.The employer had paid premiums of $250 on Mark's behalf.In addition,the corporation paid Charlotte a $10,000 employee death benefit in Mark's name.All employees' families received similar benefits regardless of financial need.Mark and Charlotte had itemized deductions of $15,600.What is the amount of their taxable income on their 2017 tax return?

Accepted Answer

The answer of Mark,a cash-basis taxpayer,died on September 30,2017.His wife,Charlotte,provides...

Question 8

Exter Company is experiencing financial difficulties.It has assets worth $2 million,but owes liabilities of $2.1 million.It has a longstanding relationship with the bank.The bank has agreed to forgive $300,000 of debt principal.Because of this debt forgiveness,Exter will recognize income of

Accepted Answer

C)While debt forgiveness is normally recognized,Exter is insolvent to the extent of $100,000 ($2 million assets - $2.1 million liabilities).The remaining $200,000 of debt forgiven must be recognized.

Question 9

This year,Jason sold some qualified small business stock that he acquired in 2008.His basis in the stock was $100,000 and he sold it for a $300,000 gain.How much of Jason's gain is taxable?

Accepted Answer

C)Gain on qualified small business stock acquired after August 10,1993 and before February 18,2009 is eligible for a 50% exclusion.

Question 10

Tim earns a salary of $40,000.This year,Tim's employer establishes a cafeteria plan under which Tim signed a salary reduction of $2,500 for which $1,500 is to cover his health insurance premiums and $1,000 is transferred to a flexible spending account to reimburse medical expenses.During the year,he is reimbursed $900 for medical expenses.What is the total taxable to Tim this year?

Accepted Answer

A)The $2,500 salary reduction is excluded from his taxable salary.Medical reimbursements are not taxable.

Question 11

Melanie,a U.S.citizen living in Paris,France,for the last three years,earns a salary of $125,000 in 2017.Melanie's housing costs are $24,000 per year,which is reasonable.How much can Melanie exclude from income?

Accepted Answer

C)$102,100 foreign earned income exclusion + $7,664 housing exclusion ($24,000 - $16,336).

Question 12

The discharge of certain student loans is excluded from income if all of the following are present except for

Accepted Answer

D)Age is not a provision for excluding the forgiveness of a student loan.

Question 13

In September of 2017,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 17 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.What is the basis in the new stock she purchased?

Accepted Answer

B)
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Question 14

Faye is a marketing manager for Healthy Corp.She earns a salary of $100,000 and has received the following benefits:
• Healthy pays 75% of all employees' health and accident insurance coverage.Healthy paid $6,000 towards the cost of Faye's health insurance during the year.
• Faye participates in the cafeteria plan and had elected to have $2,000 withheld from her pay to cover the remaining cost of the health insurance premiums and an additional $1,500 to cover dental and other health care costs not paid by insurance (i.e.funding a flexible spending account).The full $1,500 was used to pay for various qualifying medical costs.
• Healthy pays the cost of disability insurance coverage for all employees.The insurance will pay 75% of salary if employees are out of work for a significant period.The cost of Faye's premiums was $600.
• Healthy pays for the cost of veterinary insurance for all employees.The cost of coverage for Faye's dog was $400.
• Healthy pays for the cost of daycare for its employees' children.The cost for Faye's two children was $8,000.
• All employees receive a 20% discount on Healthy's products.The typical markup on their products is 25%.Faye enjoyed $1,200 of savings through the discount program.
• Faye won the manager of the year award earlier in the year and received an all-expense paid week at a desert spa valued at $3,500.
• Healthy pays Faye's annual membership dues of $500 to the American Marketing Association.
• Healthy paid for the full $2,500 cost of Faye's attendance at the American Marketing Association's annual conference in Orlando.
How much income must Faye recognize from her employment?

Accepted Answer

The answer of Faye is a marketing manager for Healthy...

Question 15

In 2015 Betty loaned her son,Juan,$10,000 to help him buy a car.In 2017,before he repaid the $10,000,Betty told Juan that she was "tearing up" the $10,000 note as a graduation present.How should Juan treat the amount forgiven?

Accepted Answer

D)The amount forgiven is an excludible gift in the year of forgiveness.

Question 16

Jamal,age 52,is a human resources manager for Triple W Company.His annual salary is $110,000 and he receives the following fringe benefits during the current year:
• Triple W pays for all employees' health and accident insurance.Triple W pays $7,000 for Jamal's health insurance during the year.
• Triple W provides Jamal with group-term life insurance coverage of $200,000 during the year.The monthly inclusion amount per $1,000 of coverage is $.23.
• Triple W has a flexible benefits plan in which employees may participate to pay any qualifying medical costs not reimbursed by their health insurance.Jamal has $1,600 withheld from his salary under the plan.During the year he receives reimbursements of $1,300.
• Triple W pays parking costs for all management employees.Jamal's parking costs $220 a month.
• Triple W pays Jamal's annual membership dues of $450 to the Society of Human Resource Management Association.The company also subscribes to several management journals for Jamal costing $650 a year.
• Jamal took a college class on financial accounting and Triple W reimbursed his tuition of $6,000 through its tuition assistance program for all employees.
• Jamal's consumption of coffee provided by Triple W is estimated at $250 a year.
How much income must Jamal report from his job?

Accepted Answer

The answer of Jamal,age 52,is a human resources manager for...

Question 17

Connor owes $4 million and has assets of only $1 million.He declares and files personal and business bankruptcy and his creditors approve a payment plan of $.25 per dollar.Connor has a net operating loss carryover of $2 million.The remaining 75 percent of his debt will be canceled.Connor must recognize income of

Accepted Answer

A)Gross income does not include income from discharge of indebtedness where discharge occurs in bankruptcy even if the reduction exceeds the available tax attributes.

Question 18

In 2015 Bonnie,a sole proprietor,loaned her employee,John,$10,000 to help him buy a car.In 2017,before he repaid the $10,000,Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance.How should John treat the amount forgiven?

Accepted Answer

B)Forgiven debt is normally included in gross income.The cancellation of debt due to job performance would be characterized as compensation income rather than as a gift,bequest or renegotiation of a purchase price.

Question 19

This year,Jonathan sold some qualified small business stock that he acquired in December 2010.His basis in the stock was $100,000 and he sold it for a $300,000 gain.How much of Jason's gain is taxable?

Accepted Answer

A)Qualifying small business stock acquired after September 27,2010 and held longer than five years is eligible for a 100% exclusion.

Question 20

Randy and Sharon are married and have two dependent children.Their 2017 tax and other related information is as follows:
  Compute Randy and Sharon's taxable income.(Show all calculations in good form. )

Accepted Answer

The answer of Randy and Sharon are married and have...

Quiz 20: Gross Income: Exclusions