Question 1

In September of 2013,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 7 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

The gain is not recognized because the taxpayer reinvested the proceeds in qualified small business stock within 45 days of the sale.

Question 2

This year,Jason sold some qualified small business stock that he acquired in 2006.His basis in the stock was $95,000 and he sold it for a $30,000 gain.How much of Jason's gain is taxable?

Accepted Answer

The answer of This year,Jason sold some qualified small business...

Question 3

Mark,a cash basis taxpayer,died on September 30,2012.His wife,Charlotte,provides you with the following information.
From January 1,2013 until his death,Mark received a salary of $68,000.Charlotte received a salary of $35,000 during 2013.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.They have no children but provide 100% support for Mark's widowed mother who lives with them and has no income.What is the amount of their taxable income on their 2013 tax return?

Accepted Answer

The answer of Mark,a cash basis taxpayer,died on September 30,2012.His...

Question 4

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

The answer of Connor owes $4 million and has assets...

Question 5

Jeremy,an American citizen,earned $200,000 during 2013 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

The maximum foreign-earned income exclusion for 2013 was $97,600. Since Jeremy earned $200,000, he can exclude up to $97,600 from his taxable income. This means his taxable income is $102,400 ($200,000 - $97,600). Since he incurred $40,000 in deductible expenses, he can deduct that amount from his taxable income, resulting in a final taxable income of $62,400. The deduction would be limited to $62,400 since it cannot result in a negative taxable income. Therefore, Jeremy may deduct $20,480 in expenses ($62,400 x 0.327, which is the highest federal tax rate for 2013).

Question 6

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 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 valued 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 7

In September of 2013,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 7 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

Michelle can use the proceeds from the sale of the qualified small business stock to purchase other qualified small business stock within 45 days without paying taxes on the original sale. The basis in the new stock is increased by the amount of the proceeds from the sale, which is $1,000,000. Therefore, the basis in the new stock is $1,100,000 - $1,000,000 = $100,000 above the purchase price, which is $300,000. So, the correct answer is B.

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

The debt forgiveness of $300,000 is considered taxable income for Exter Company. Therefore, Exter will recognize income of $300,000 - $100,000 (the debt forgiveness) = $200,000.

Question 9

Adam purchased stock in 2006 for $100,000.He is considering selling it in 2013.It is currently worth $2,100,000 so he would realize a $2,000,000 gain.Adam is in the top tax bracket.Determine the taxes due under the following independent situations (ignore any additional Medicare taxes on investment income):
(a)Adam sells the stock,and no special circumstances apply.
(b)The stock is qualified small business corporation stock.
(c)The stock is qualified small business corporation stock.Within 60 days Adam invests $2,500,000 in new qualifying small business corporation stock.
(d)The stock is qualified small business corporation stock.Within 60 days Adam invests $2,000,000 in new qualifying small business corporation stock.

Accepted Answer

The answer of Adam purchased stock in 2006 for $100,000.He...

Question 10

Melanie,a U.S.citizen living in Paris,France,for the last three years earns a salary of $110,000 in 2013.Melanie's housing costs are $24,000 per year,which is reasonable.How much can Melanie exclude from income?

Accepted Answer

Melanie is eligible for the Foreign Housing Exclusion. The exclusion is based on the difference between the taxpayer's eligible housing expenses and a base amount determined by the taxpayer's income.

For taxpayers in Paris, the base amount for 2013 is $16,016. Melanie's eligible housing expenses are $24,000.

Melanie's exclusion amount is calculated as follows:

$24,000 (eligible housing expenses) - $16,016 (base amount) = $7,984

Melanie can exclude $7,984 from her income.

Therefore, the correct answer is C) $105,984 (Melanie's salary of $110,000 minus the exclusion amount of $7,984).

Question 11

In 2006,Gita contributed property with a basis of $500,000 and a fair market value of $3,000,000 to a qualified small business corporation for all of its common stock.She sells the stock in 2013 for $4,000,000.What is the amount of taxable gain on the transaction?

Accepted Answer

The answer of In 2006,Gita contributed property with a basis...

Question 12

Bob,an employee of Modern Corp.,receives a fringe benefit (in lieu of a salary increase)of $1,000.Bob is in a 33% tax bracket.The fringe benefit is nontaxable to Bob and is not deductible as an itemized deduction.Bob's after-tax savings from receiving the tax-free benefit is

Accepted Answer

The answer of Bob,an employee of Modern Corp.,receives a fringe...

Question 13

In 2012 Betty loaned her son,Juan,$10,000 to help him buy a car.In 2013,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

The forgiven amount of the loan is treated as a gift and can be excluded from Juan's income in the year of forgiveness. Betty's cancellation of the debt is considered a gift as there was no exchange of goods or services. As a result, Juan should treat the amount forgiven as an excludable gift in the year of forgiveness.

Question 14

Daniel purchased qualified small business corporation stock for $200,000.After five years,he sells the stock for $2,200,000,realizing a $2,000,000 gain.Determine the taxes due under the following independent situations (apply current tax rates,but ignore any additional Medicare taxes on investment income):
(a)Daniel purchased the stock on February 1,2009.
(b)Daniel purchased the stock on March 1,2009.
(c)Daniel purchased the stock on October 1,2010.

Accepted Answer

The answer of Daniel purchased qualified small business corporation stock...

Question 15

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

Accepted Answer

The discharge of student loans based on age is not excluded from income. Only loans that meet the criteria of being made by governmental, educational, or charitable organizations, being used for education costs, and having forgiveness contingent upon working in certain professions are excluded from income.

Question 16

Discuss the requirements for meals provided by employers to be excluded from their employees' income.How is the de minimis rule distinguished from these requirements?

Accepted Answer

The answer of Discuss the requirements for meals provided by...

Question 17

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 18

Faye is a marketing manager for Healthy Corp.She earns a salary of $100,000 and has received the following benefits during 2013:
• 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 19

Randy and Sharon are married and have two dependent children.They also fully support Sharon's mother who lives with them and has no income.Their 2013 tax and other related information is as follows:
Total salaries $160,000
Bank account interest income $3,500
Municipal bond interest income $1,500
Value of employer provided medical insurance$5,500
Value of premiums for $50,000 of group term life insurance provided by employer $500
Dividend income-from ABC stock,$2,000
Loan from Randy's parents $5,000
Gift from Randy's parents $15,000
Gain from the sale of qualified small business stock acquired in 2006 $15,000
Total itemized deductions $16,000
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...

Question 20

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

Accepted Answer

Generally, the discharge of debt is taxable as income for a taxpayer who is not insolvent or in bankruptcy proceedings. The canceled debt is considered a gain to the taxpayer and must be reported as taxable income on their tax return.

Quiz 4: Gross Income: Exclusions