Question 1

Each year a taxpayer must include in gross income the rental value of his or her personal residence.

Accepted Answer

A taxpayer typically does not need to include the rental value of their personal residence in gross income unless they rent out all or part of their residence for income. However, there may be exceptions and it is best to consult a tax professional for advice.

Question 2

Many exclusions exist due to the benevolence of Congress or as a result of the government's attempts to encourage particular social behavior.

Accepted Answer

Many tax exclusions exist because Congress has created them to incentivize certain behaviors, such as charitable giving, home ownership, and education.

Question 3

While payments received because a person has been physically injured are excluded from gross income,payments on account of non-physical injury must be included in gross income.

Accepted Answer

This statement is true. Payments received for physical injuries, such as medical expenses and compensation for lost wages, are not considered taxable income. However, payments received for non-physical injuries, such as discrimination or emotional distress, are considered taxable income and must be reported on a tax return.

Question 4

Loan proceeds are taxable in the year received in cash.

Accepted Answer

Loan proceeds are not considered taxable income because they are not considered earned income. Instead, they are considered debt that must be repaid, often with interest. However, there are certain exceptions, such as forgiven loans or cancelled debt, which may be considered taxable income.

Question 5

Amounts withdrawn from Qualified Tuition Plans are tax-free if the amounts are used for qualified higher education expenses including tuition,fees,books,and room and board for students attending on at least a half-time basis.

Accepted Answer

Amounts withdrawn from Qualified Tuition Plans are tax-free if they are used for qualified higher education expenses.

Question 6

Sam received a scholarship for room and board. This scholarship is excludable from income.

Accepted Answer

The answer of Sam received a scholarship for room and...

Question 7

Amounts collected under accident and health insurance policies purchased by the taxpayer are excludable from income.

Accepted Answer

Amounts collected under accident and health insurance policies purchased by the taxpayer are generally excluded from income under U.S. tax law. However, there may be some exceptions or limitations, so taxpayers should consult with a tax professional for specific guidance.

Question 8

Payments received from a workers' compensation plan are taxable.

Accepted Answer

Payments received from a workers' compensation plan are not taxable. They are considered to be compensation for an injury or illness, and thus are excluded from income tax. However, if a portion of the payment is for lost wages and is considered to be a substitute for regular income, that portion may be taxable.

Question 9

In general,if a life insurance policy is sold or surrendered for a lump sum before the death of the insured,the amount received is taxable to the extent it exceeds the premiums paid.

Accepted Answer

The amount received from selling or surrendering a life insurance policy for a lump sum before the death of the insured is taxable to the extent it exceeds the premiums paid.

Question 10

Dividends on life insurance policies are generally excludable income because they are considered a return of premium.

Accepted Answer

Dividends on life insurance policies are often considered a return of premium, meaning that they represent a refund of a portion of the premiums paid for the policy. As such, they are generally not considered taxable income and are excluded from income for tax purposes.

Question 11

Punitive damages are taxable unless they are awarded for physical injuries.

Accepted Answer

Punitive damages are generally not taxable, regardless of the reason for the award. They are meant to punish and deter bad behavior, not to compensate for losses or injuries. However, any interest or earnings on the punitive damages may be taxable. In contrast, compensatory damages awarded for physical injuries or sickness are generally tax-free.

Question 12

Katie,a self-employed CPA,purchased an accident & disability insurance policy.As the result of an auto accident,Katie was unable to work and received $3,000 of disability benefits per month for seven months.The benefits were based on her estimated monthly income and should be reported as gross income.

Accepted Answer

The answer of Katie,a self-employed CPA,purchased an accident & disability...

Question 13

Accelerated death benefits received by a terminally ill person may be excluded from taxable income.

Accepted Answer

According to the IRS, accelerated death benefits paid to a terminally ill person are generally excluded from taxable income.

Question 14

A taxpayer may avoid tax on income by having the payment made to another taxpayer.

Accepted Answer

This is the definition of tax evasion and is illegal. Income must be reported by the individual who earned it and cannot be transferred to another person to avoid paying taxes on it.

Question 15

An individual is considered terminally ill for tax purposes if a physician certifies that he is reasonably likely to die within 36 months.

Accepted Answer

For tax purposes, an individual is considered terminally ill if a physician certifies that they are reasonably likely to die within 24 months, not 36 months.

Question 16

Awards for emotional distress attributable to a physical injury are excluded from gross income.

Accepted Answer

According to IRS Publication 525, awards for emotional distress attributable to a physical injury or sickness are excluded from gross income. However, emotional distress awards for non-physical injuries or sickness are generally taxable.

Question 17

Any distribution from a Qualified Tuition Plan not used for qualified higher education expenses is both included in income and subject to a 10% penalty.

Accepted Answer

The answer of Any distribution from a Qualified Tuition Plan...

Question 18

Upon the sale of property,a portion of the selling price equal to the basis in the property is considered a return of capital to the seller and is therefore not taxable.

Accepted Answer

This is true. The portion of the selling price that represents the basis in the property is considered a return of capital and is not subject to taxation.

Question 19

Sumedha is the beneficiary of her mother's $500,000 life insurance policy.She receives $54,000 per year over ten years in settlement of her mother's policy. Sumedha will exclude the $54,000 proceeds received each year from the life insurance company.

Accepted Answer

The answer of Sumedha is the beneficiary of her mother's...

Question 20

John,an employee of a manufacturing company,suffered a heart attack and was unable to work for six months.He received $1,500 per month of disability benefits as a result of an employer-provided group policy.The benefits are includible in John's gross income.

Accepted Answer

Disability benefits received through an employer-provided group policy are generally taxable and includible in the recipient's gross income.

Quiz 8: Gross Income: Exclusions