Deck 2: Gross Income and Exclusions

Question 1

Disability benefits are generally taxable to the individual receiving the amounts.

Answer 1

False

Question 2

If a life insurance policy is transferred to the insured's partnership for valuable consideration,the insurance proceeds are taxable when received by the partnership.

Answer 2

False

Question 3

Child support payments are deductible by the spouse making the payments.

Answer 3

False

Question 4

Awards,bonuses,and gifts are all included in gross income.

Question 5

If an annuitant,whose annuity starting date was January 1,2001,dies before recovering his or her investment in the annuity,any unrecovered investment is recognized as a loss on the annuitant's tax return for the year of death.

Question 6

Taxpayers must report interest income on Series EE savings bonds as the interest accrues.

Question 7

Amounts received as scholarships for books and tuition may be excluded from the recipient's taxable income.

Question 8

If a divorce agreement executed in 2013 specifies that a portion of the amount of an alimony payment is contingent upon the status of a child,that portion is considered to be a child support payment.

Question 9

An auto that is received as a prize should be included in the taxpayer's income at its list price rather than its fair market value.

Question 10

Interest income received by a cash basis taxpayer is generally reported in the tax year it is received.

Question 11

Noncash items received as income must be included in income at their fair market value.

Question 12

A gift received from a financial institution for opening a bank account is not taxable income to the recipient.

Question 13

Dividend income arising from stock received as a gift is excluded from gross income since the dividends are considered part of the gift.

Question 14

When calculating the exclusion ratio for an annuity,the ratio should be revised when there is a significant change in the taxpayer's status or health.

Question 15

Dr.J's outstanding player award is not includible in income,since the award is in recognition of his outstanding performance.

Question 16

Payments made to a qualified retirement plan by an employer are considered part of the employee's investment in the contract for calculation of the annuity exclusion ratio.

Question 17

The receipt of an inheritance is excluded from the taxable income of the recipients.

Question 18

To promote business activity,the tax rules generally are very liberal in treating business gifts as tax-free income to the recipient.

Question 19

Under a divorce agreement executed in 2013,periodic payments of either cash or property must be made at regular intervals to be deductible as alimony.

Question 20

Interest on U.S.Treasury Bonds is not taxable.

Question 21

A scholarship for room and board granted in 2013 is fully taxable to the recipient.

Question 22

All of the following amounts are excluded from gross income,except:

A)Tips and gratuities
B)Child support payments
C)Scholarship grants for tuition
D)Gifts
E)Veterans' benefits

Question 23

Unemployment compensation is fully taxable to the individual receiving the compensation.

Question 24

Interest earned on bonds issued by a state government is fully taxable.

Question 25

Which of the following amounts must be included in the gross income of the recipient?

A)Child support payments
B)Welfare payments
C)Gifts
D)Royalties
E)All of the above are included in gross income

Question 26

Which of the following is generally excluded from gross income?

A)Dividends
B)Rewards
C)Disability benefits
D)Passive income
E)None of the above

Question 27

All of the following amounts are taxable income to the recipient except:

A)Prizes
B)Unemployment compensation
C)Salaries
D)Farm income
E)Gifts

Question 28

The value of lodging provided to a professor to enable him to live near the campus is excluded from gross income.

Question 29

Which of the following is classified as nontaxable income?

A)Unemployment compensation
B)Dividend income
C)Income from real estate rental property
D)Welfare payments
E)None of the above

Question 30

All of the following amounts must be included in gross income,except:

A)Gambling winnings
B)Partnership income
C)Accident insurance proceeds
D)Dividends
E)Jury duty fees

Question 31

Payments made by an employer for health insurance on behalf of an employee are considered income to the employee at the time the payments are made.

Question 32

Amounts received by an employee as reimbursement for medical expenses under a policy provided by the taxpayer's employer are excluded from gross income.

Question 33

If an employer claims a business deduction for group health insurance premiums paid on behalf of his employees,the amount must be included in the employees' gross income.

Question 34

Cash allowances for meals or lodging generally must be included in the employee's income.

Question 35

A "no-additional-cost" service includes only those services in the major line of business in which the employee is employed.

Question 36

Which of the following is excluded from gross income?

A)Prizes
B)Scholarships for tuition
C)Hobby income
D)Rental income
E)All of the above are included in gross income

Question 37

Which of the following is not taxable income?

A)Dividends
B)Income from relief of debt
C)Interest
D)Royalties
E)Welfare benefits

Question 38

In the tax law,the definition of gross income is:

A)All cash payments received unless excluded by the tax code
B)All cash payments received for services performed
C)All income from whatever source derived
D)All income of any kind unless the income is earned illegally

Question 39

In some cases,Social Security benefits may be partially taxable.

Question 40

Group term life insurance premiums paid by an employer for insurance amounts less than $50,000 must be included in the employee's income.

Question 41

Tim receives $500 of qualified dividends from Exxon in 2013.He is in the 10 percent ordinary tax bracket.Tim's tax on the dividends will be:

A)$50
B)$75
C)$0
D)$25
E)$100

Question 42

Richard,who retired on April 30,2013,receives a monthly employee annuity benefit of $1,400 payable for life,beginning May 1,2013.During his years of employment,Richard contributed $29,400 to the company's plan.Richard's life expectancy from the IRS tables is 10 years.Using the general rule,how much of the annuity payment amounts received during 2013 $11,200)may Richard exclude from gross income?

A)$1,960
B)$2,940
C)$9,240
D)$11,200
E)None of the above

Question 43

Marie had a good year.She received the following prizes and awards: - an iPad from The Oprah Show with a fair market value of $500
- lottery winnings of $1,000 received in cash
- a plaque worth $25 plus $100 of Godiva chocolate in recognition for 100 days on the job without an accident
- a $10,000 cash prize from American Idol
How much of her prizes and awards should Marie report on her tax return?

A)None,they are all excluded from income
B)$11,000;only cash prizes and awards are included
C)$11,500;the award from her job is excluded
D)$11,700;the plaque may be excluded
E)$11,725;everything is included at the highest amount

Question 44

For divorces after 1984,which of the following statements about alimony payments is not correct?

A)The payments must be in cash and must be received by the spouse or former spouse)
B)Divorced or legally separated parties can be members of the same household at the time the payments are made
C)The payor must have no liability to make payments for any period following the death of the spouse receiving the payments
D)The payments must not be designated in the written agreement as anything other than alimony

Question 45

Laura and Leon were granted a divorce in 2004.In accordance with the decree,Leon made the following payments to Laura in 2013: Child support payments contingent on the age of the child $\quad$$\$ 4,000$
Annual cash payments, other than child support, specified as
alimony in the divor ce agreement $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $\$ 6,000$ How much should Laura include in her 2013 taxable income as alimony?

A)$0
B)$6,000
C)$10,000
D)$4,000
E)None of the above

Question 46

Arthur,age 19,is a full-time student at Gordon College and is a candidate for a bachelor's degree.During 2013,he received the following amounts: $\begin{array}{ll}\text { Tuition scholarship } & \$ 2,400 \\\text { Loan from college financial aid office } & \$ 1,000 \\\text { Cash support from parents } & \$ 2,000 \\\text { Ordinary cash dividend } & \$ 500 \\\text { Cash prize awarded in contest } & \$ 300\end{array}$ What is his adjusted gross income for 2013?

A)$700
B)$800
C)$3,200
D)$6,200
E)None of the above

Question 47

Steve and Laura were divorced in 2007.Laura pays Steve alimony of $1,200 a month.The payment amount was agreed upon in the decree of divorce.To save money,Steve and Laura still live together.Are the alimony payments that Steve receives in 2013 includable in his income? Can Laura take a deduction for alimony paid?

A)Yes,the payments meet all alimony payment requirements.
B)Yes,alimony is always taxable.
C)No,only some of it is tax-exempt because Laura pays Steve too much alimony.
D)No,since Steve and Laura still live together,the payments are not considered alimony.
E)Yes,alimony payments are not tax-exempt.

Question 48

Laura and Leon were granted a divorce in 2004.In accordance with the decree,Leon made the following payments to Laura in 2013: Child support payments contin gent on the age of the child $\quad\$ 4,000$
Indefinite periodic payments terminating on Laura's death $\quad\$ 6,000$ How much of the payments can he deduct as alimony in 2013?

A)$0
B)$6,000
C)$10,000
D)$4,000
E)None of the above

Question 49

Terry receives $3,000 annually from an annuity contract which she purchased in 2003 for $15,000.Her total expected return under the contract is $45,000 and payments under the contract began in 2004.For the years 2004 through 2013,Terry received $3,000 per year.Of the $3,000 received during 2013,what amount must Terry include in her gross income for 2013 under the general rule?

A)$3,000
B)$2,062
C)$2,000
D)$1,000
E)None of the above

Question 50

Sam,a calendar year taxpayer,purchased an annuity contract for $3,600 that would pay him $120 a month beginning on January 1,2013.His expected return under the contract based on his life expectancy is $10,800.Assuming Sam received a total of $1,440 in payments during 2013,how much of this annuity income is included in Sam's gross income for 2013,using the general rule?

A)$0
B)$480
C)$960
D)$1,440
E)None of the above

Question 51

Richard and Alice are divorced and under the terms of their written divorce agreement signed on December 30,2006,Richard was required to pay Alice $1,500 per month of which $600 was designated as child support.He made 12 such payments in 2013.Additionally,Richard voluntarily paid Alice $1,200 per month for 12 months of 2013,no portion of which was designated as child support.Assuming that Alice has no other income,her tax return for 2013 should show gross income of:

A)$0
B)$10,800
C)$18,000
D)$25,200
E)None of the above

Question 52

Roger is required under a 2003 divorce decree to pay $500 of alimony and $200 of child support per month for 12 years.In addition,Roger makes a voluntary payment of $100 per month.How much of the total monthly payment is deductible by Roger?

A)$0
B)$200
C)$500
D)$600
E)None of the above

Question 53

Elmer received the following distributions from Virginiana Mutual Fund for the calendar year 2013: $\begin{array}{ll}\text { Ordinary dividends (nonqualifying) } & \$ 250 \\\text { Capital gain distributions } & \$ 170 \\\text { Nontaxable distributions } & \$ 80\end{array}$ Elsie,Elmer's wife,did not own any of the Virginiana Mutual Fund shares,but she did receive $1,600 in interest on a savings account at the Moss National Bank.Elmer and Elsie filed a joint income tax return for 2013.What portion of the distributions from Virginiana Mutual Fund is taxable as ordinary income on their 2013 individual income tax return?

A)$0
B)$250
C)$420
D)$500
E)None of the above

Question 54

Which of the following gifts or prizes would be considered taxable income to the person receiving the gift?

A)$5,000 given to the taxpayer from his friend
B)A mobile home given to the taxpayer by his mother
C)A ski boat won by the taxpayer on the Price is Right
D)A Mustang GT given to the taxpayer by his brother
E)None of the above would be considered taxable

Question 55

In 2013,Uriah received the following interest payments: Interest of $400 on an overpayment of 2012 Federal income taxes Interest of $300 from his bank certificate of deposit.
Interest of $1,500 on municipal bonds
Interest of $1,000 on United States savings bonds Series HH)
What amount,if any,should Uriah report as taxable interest income on his 2013 individual income tax return?

A)$0
B)$700
C)$1,700
D)$3,200
E)None of the above

Question 56

Jerry and Sally were divorced under an agreement executed July 1,2013.The terms of the agreement provide that Jerry will transfer to Sally his interest in a rental house worth $250,000 with a tax basis to Jerry of $80,000.What is the amount of the gain that must be recognized by Jerry on the transfer of the property and what is Sally's tax basis in the property after the transfer,respectively?

A)$170,000 and $250,000
B)$0 and $250,000
C)$170,000 and $170,000
D)$0 and $80,000
E)None of the above

Question 57

Which of the following is nontaxable income to the recipient for tax purposes?

A)Salary income
B)Income from real estate rental property
C)Income from tips
D)Inheritances
E)None of the above

Question 58

As a Christmas thank you for being a good employee,Ed's TV Repair gave 62-year-old Edwina three shares of its stock worth $20 per share.Edwina then received dividends of $1 per share related to the stock.How much should be included in Edwina's gross income?

A)$0
B)$3
C)$60
D)$63
E)None of the above

Question 59

Mary received the following items during 2013: Christmas bonus from her employer $\$ 500$
Christmas gift from her father $\quad \quad \quad \$35$
Prize won in a radio show contest $\quad \$ 100$ What is the total amount of the above items that must be included in Mary's 2013 gross income?

A)$0
B)$100
C)$500
D)$600
E)$635

Question 60

Elmer received the following distributions from Virginiana Mutual Fund for the calendar year 2013: Ordinary dividends $\quad\quad\quad \$ 250$
Capital gain distributions $\quad\$ 170$
Nontaxable distributions $\quad\$ 80$ Elsie,Elmer's wife,did not own any of the Virginiana Mutual Fund shares,but she did receive $175 in interest on a savings account at the Moss National Bank and $1,475 in interest on California Municipal Bonds.Elmer and Elsie filed a joint income tax return for 2013.What amount is reportable as taxable interest income?

A)$0
B)$175
C)$1,475
D)$1,650
E)None of the above

Question 61

Steve worked as a tech supervisor for a computer company.In September of 2013,he was laid off.He was paid unemployment compensation for the rest of the year totaling $7,000.Which of the following is true?

A)Steve will have to report all $7,000 of the unemployment compensation as income.
B)Steve will have to report $4,600 of the unemployment compensation as income.
C)Unemployment compensation is never taxable.
D)As long as the unemployment compensation payments are less than the taxpayer's previous salary,they are not taxable.
E)None of the above is true.

Question 62

Which of the following is correct?

A)Employee discounts are always included in gross income.
B)Employee discounts of up to 20 percent may be taken on personal property held for investment.
C)Employee discounts are not tax-free if they exceed the employer's gross markup for merchandise.
D)Tax-free employee discounts include discounts in lines of business in which the employee does not work.

Question 63

Jack is a lawyer and Jeri is a child psychologist.Jack prepares Jeri's estate planning at no charge and Jeri agrees to counsel Jack's daughter six times at no charge in return for the estate planning.The value of the estate planning is $1,000 and the value of the therapy sessions is $1,000.
a.How much income does Jack have? Why?
b.How much income does Jeri have? Why?

Question 64

Robert works for American Motors.American Motors pays a $1,200 premium on Robert's health insurance in 2013.Robert has an operation on his big toe in 2013 that cost $7,200.The insurance company paid for $6,800 of it.Which one of the following is true?

A)Robert must claim the $1,200 premium paid by his employer as income in 2013.
B)Robert must claim the $6,800 paid by the insurance company for the operation as income in 2013.
C)Robert must claim the $1,200 premium and the $6,800 insurance payment as income in 2013.
D)None of these events are taxable on his 2013 return.

Question 65

In which of the following cases may the employee exclude the meals and/or lodging:

A)A taxpayer lives rent-free at the property she manages even though the owner does not require the manager to live on site.
B)A headmaster at a boarding school is required to be on campus all night.
C)A president of a major film studio receives a cash allowance to live in Beverly Hills.
D)An employee has an option of dining in an employer-sponsored cafeteria or dining out of the office.

Question 66

Susie received unemployment benefits in the current year.

A)All of the unemployment benefits are taxable.
B)All of the unemployment benefits are non-taxable.
C)Half of the unemployment benefits are taxable and half are non-taxable.
D)The taxability of the unemployment benefits depends upon other income received for the year.

Question 67

Indicate which of the following statements is true.

A)Dependent care plans can only be used to cover the costs of caring for a dependent child.
B)Medical flexible spending accounts can be used to cover dentist fees.
C)Public transportation may be covered by an employer-provided spending account,but parking can not be covered.
D)Dependent care accounts may include day care but not preschool

Question 68

Which of the following would result in life insurance proceeds that are taxable to the recipient?

A)A life insurance policy transferred to a creditor in payment of a debt
B)A life insurance policy in which the insured is the daughter of the taxpayer and the beneficiary is the taxpayer
C)A life insurance policy transferred by a shareholder to a corporation
D)A life insurance policy purchased by a taxpayer insuring his or her business partner
E)A life insurance policy purchased by a corporation insuring an officer.

Question 69

In regards to Social Security benefits:

A)The Social Security inclusion formula is the same amount for each filing status.
B)Social Security benefits are always excluded because wages are subject to Social Security tax when earned.
C)Tax-free interest income must be included in the formula used to determine if Social Security is included in taxable income.
D)Up to 100 percent of Social Security benefits received may be included in taxable income.

Question 70

Employer-provided spending accounts:

A)May be set up for tax-free vacation savings
B)Are not allowed for dependent care
C)Do not require that the employee provide receipts for the expenses incurred
D)Allow qualifying expenses to be treated as tax-free reductions in the employees' salaries

Question 71

Seymore named his wife,Penelope,the beneficiary of a $100,000 insurance policy on his life.The policy provided that,upon his death,the proceeds would be paid at a rate of $4,000 per year plus interest over a 25-year period.Seymore died June 25,2012,and in 2013 Penelope received a payment of $5,200 from the insurance company.What amount should she include in her gross income for 2013?

A)$200
B)$1,200
C)$4,000
D)$5,200
E)None of the above

Question 72

Which of the following fringe benefits is taxable to the employee receiving the benefit?

A)A subscription to a tax journal provided by the employer to a corporation's tax accountant
B)A small discount on toys granted to the salesperson for a toy store
C)Incidental use of the company's copier by an office worker
D)A 15 percent discount on investment real estate granted to the employee of a real estate developer
E)All of the above are tax-free

Question 73

An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9 percent per year and a municipal bond which pays an interest rate of 7.9 percent per year.The investor is in the 15 percent tax bracket.Which bond will give the investor a higher after-tax interest rate and for which reason?

A)The ABC bond because it pays a 9 percent interest rate,while the municipal bond only pays 7.9 percent .
B)The ABC bond because it pays an equivalent after-tax rate of 10.6 percent,while the municipal bond pays out an equivalent after-tax rate of 9.3 percent.
C)The municipal bond because it pays an equivalent after-tax rate of 9.3 percent,while the ABC bond pays out a 9 percent interest rate.
D)The municipal bond because it pays an equivalent after-tax rate of 7.9 percent,while the ABC bond pays out an equivalent after-tax rate of 7.65 percent.
E)None of the above is correct.

Question 74

Which taxpayer would benefit the most from a tax-free municipal bond compared to a taxable bond?

A)A taxpayer whose only income is from Social Security
B)A taxpayer who won a mega-million-dollar lottery
C)The average blue collar worker
D)They would all equally benefit from the tax-free municipal bond

Question 75

Sam died on January 15,2003 and left his wife,Terry,an insurance policy with a face value of $100,000.Terry elected to receive the proceeds over a 10-year period $10,000 plus interest each year).This year Terry receives $11,500 $10,000 proceeds plus $1,500 interest)from the insurance company.How much income must Terry report from this payment?

A)$0
B)$500
C)$1,500
D)$11,500
E)None of the above

Question 76

For 2013,the maximum percentage of Social Security benefits which must be included in a taxpayer's gross income is?

A)0%
B)50%
C)65%
D)85%
E)100%

Question 77

Which of the following may be excluded from income?

A)Payment for the loss of an arm
B)Premiums for health insurance paid by the employer
C)Reimbursement from the insurance company for a physical examination
D)All of the above are excluded from gross income
E)None of the above are excluded from gross income

Question 78

Andy landscaped his friend's house in return for a couch set and an HD television worth $8,000.How much income must Andy report on his tax return for his services?

Question 79

Nicole is a student at USB Law;she receives a $52,000 scholarship for 2013.Of the $52,000,$40,000 is used for tuition,$5,000 is used for books,and $7,000 is used for room and board.How much of the scholarship is taxable income for Nicole in 2013?

A)$52,000
B)$40,000
C)$45,000
D)$7,000
E)$12,000

Question 80

To pay for college,Henry received the following: $1,000 scholarship from the Thespian Club to pay for books
$5,000 scholarship from the Elks Lodge for tuition
$4,000 worth of room and board as a dorm supervisor through a work-study program
How much must Henry claim on his tax return?

A)$0
B)$4,000
C)$5,000
D)$6,000
E)$10,000