Question 1

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 their car for a note receivable, it is considered a form of income for the seller and must be reported on their tax return.

Question 2

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 3

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

This is correct. Both parties are receiving something of value, and therefore it must be reported as income at fair market value.

Question 4

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

Accepted Answer

Imputed interest is when the IRS assumes interest is being paid on a loan, even if no actual interest is being paid. This is often the case when the loan is made between family members or friends and there is little or no interest charged. As a result, the taxpayer must report the imputed interest as income on their tax return, even though they never actually received any interest payments.

Question 5

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, if the restaurant owner provides discounts to employees for food, the discounts are not taxable if they do not exceed the gross profit percentage of the business. This means that if the discount is the same percentage as the restaurant's gross profit, then it is not taxable. However, if the discount is higher than the gross profit percentage, then the excess amount is taxable.

Question 6

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 7

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 circumstances. For example, if the property or services were received as payment for work performed, it would likely be considered taxable income.

Question 8

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 9

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 10

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

Accepted Answer

Prizes and awards received by an employee from their employer are generally considered taxable income and must be included in their W-2 form. However, there are certain exceptions and exclusions that may apply depending on the type and value of the prize or award.

Question 11

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

Accepted Answer

Payments received under workers' compensation acts are generally not considered taxable income to the recipient. This includes payments for medical expenses and lost wages due to a work-related injury or illness. However, there may be exceptions if the recipient also receives disability benefits or if the recipient returns to work and receives wages while still receiving workers' compensation payments.

Question 12

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 13

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 14

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

This is correct. As of 2021, if an individual's marginal ordinary income tax rate is 25% or higher but less than 39.60%, the taxation rate on qualified dividends is 15%.

Question 15

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

Accepted Answer

Banks and credit unions are required to report any interest income of $10 or more on Form 1099-INT to both the IRS and the taxpayer.

Question 16

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 17

Receipt of property or services will trigger income recognition.

Accepted Answer

Income recognition generally occurs when property or services are received, regardless of whether payment has been made or not.

Question 18

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. This is known as imputed income and must be included in the employee's gross income for tax purposes.

Question 19

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

Accepted Answer

This is the basic principle of taxation that income must be recorded and taxed. If a transaction results in an increase in the taxpayer's economic well-being, it is considered income and taxable.

Question 20

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

A de minimis benefit is defined by the IRS as a fringe benefit that is of so little value that it is unreasonable or administratively impractical to account for it. As a result, they are generally excluded from taxation and reporting requirements.

Quiz 3: Gross Income: Inclusions and Exclusions