Question 1

For tax purposes,name the three conditions that a transaction must meet for income recognition.

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Question 2

Name three items that are exempt from income under the umbrella of compensation for injuries or sickness.

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Question 3

In what form can a taxpayer realize income?

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Question 4

Under a dependent care assistance plan,the exclusion for a head of household taxpayer cannot exceed his or her earned income and:

Accepted Answer

The exclusion for a head of household taxpayer under a dependent care assistance plan cannot exceed $5,000, which is the maximum limit set by the IRS for such plans.

Question 5

The following items under compensation for sickness or injury are exempt from income and do not have to be reported on the taxpayer's tax return:

Accepted Answer

Only workers' compensation payments are exempt from income and do not have to be reported on the taxpayer's tax return. Sick pay and welfare payments are taxable and must be reported.

Question 6

What are cafeteria plans?

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Question 7

A taxpayer received a 1099-G for 2016 showing $350 of state income tax refund that he received during the year from 2015 state taxes paid.Does the taxpayer have to report the state income tax refund of $350 in 2016?

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Question 8

The imputed interest rules do not apply to the following:

Accepted Answer

All of the options listed are exceptions to the imputed interest rules, so the correct answer is D.

Question 9

Does forgiveness of debt result in taxable income to the taxpayer borrower)?

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Question 10

Does forgiveness of a loan repayment by the lender represent income to the borrower?

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Question 11

Discounts offered to employees on services cannot exceed ________ of the normal selling price.

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Question 12

Describe the various situations where a taxpayer must file a Schedule B Forms 1040A or 1040)when receiving interest income.

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Question 13

The following income item is not taxable:

Accepted Answer

Child support is not taxable income. Alimony, sick pay, and jury duty pay are all taxable income.

Question 14

Laura is a student at a state university.In 2016,she received a scholarship of $6,000 for tuition and fees and an assistantship for $3,000.What is the amount that Laura must report in income?

Accepted Answer

The $3,000 assistantship is considered taxable income, while the $6,000 scholarship for tuition and fees is not taxable if it is used for qualified education expenses.

Question 15

The taxability of social security benefits depends on the provisional income and ________.

Accepted Answer

The taxability of social security benefits depends on two factors: the provisional income and the filing status of the taxpayer. The provisional income is the sum of the taxpayer's adjusted gross income, tax-exempt interest income, and half of their social security benefits. Depending on the taxpayer's filing status, a certain portion of their social security benefits may be taxable.

Question 16

Felix,a single taxpayer,claimed $180 of state tax as an itemized deduction on his 2015 tax return.The total itemized deductions on his tax return were $6,350.In 2016,he received a $25 refund from the state.What is the amount Felix has to report on his 2016 tax return?

Accepted Answer

Felix received a state tax refund in 2016, which reduces the amount of state tax he paid in 2015. However, since he claimed the $180 state tax as an itemized deduction in 2015, he received a tax benefit from that deduction. Therefore, he must include the $25 refund as income on his 2016 tax return to account for the tax benefit he received from the $180 deduction in 2015. The answer is $25, which is choice C.

Question 17

What is the taxable amount of social security income reported on the tax return if a single taxpayer received $9,400 in social security benefits and $150 in interest income?

Accepted Answer

For a single taxpayer, if the sum of half of the social security benefits ($4,700) and other income ($150) is less than the base amount of $25,000, none of the social security benefits are taxable.

Question 18

Determine the amount of tax liability under the following two situations.
1.The taxpayer is single with taxable income of $54,690 that includes qualified dividends of $450.
1.The taxpayer is married filing jointly with taxable income of $64,500 that includes qualified dividends of $300.

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Question 19

Define constructive receipt.

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Question 20

With OID instruments,taxpayers report annually a portion of the OID as:

Accepted Answer

OID stands for original issue discount, which is the difference between the face value of a bond issued at a discount and the price paid for that bond. Since OID represents interest earned over the life of the bond, taxpayers report it as interest income on their annual tax return. Therefore, the best choice is D, interest income.

Quiz 3: Gross Income: Inclusions and Exclusions