Deck 2: Gross Income and Exclusions

Question 1

If a payment is less than the full amount of the alimony and child support:

A)Any excess over the amount of the alimony due is considered to be child support.
B)The full amount is treated as alimony.
C)The full amount is treated as child support.
D)Any excess over the amount of child support due is considered to be alimony.
E)None of the payment can be deducted in the tax return of the spouse making the payment.

Answer 1

D

Question 2

Ricardo,who retired on June 30,2011,receives a monthly employee annuity benefit of $1,000 payable for life,beginning July 1,2011.During his years of employment,Ricardo contributed $30,000 to the company's plan.Ricardo's life expectancy from the IRS tables is 10 years.Using the general rule,how much of the annuity payment amount of $6,000 received during 2011 may Ricardo exclude from gross income?

A)$6,000
B)$4,500
C)$3,000
D)$1,500
E)None of the above

Answer 2

D

Question 3

Rosalind and Carl were divorced under an agreement executed July 1,2011.The terms of the agreement provide that Rosalind will transfer to Carl her interest in a rental house worth $300,000 with a tax basis of $120,000.What is the amount of the gain that must be recognized by Rosalind on the transfer of the property and what is Carl's tax basis in the property after the transfer,respectively.

A)$180,000 and $300,000
B)$0 and $300,000
C)$180,000 and $120,000
D)$0 and $120,000
E)None of the above

Answer 3

D

Question 4

Which of the following is not excluded from gross income?

A)Child support payments
B)Bequests
C)Scholarships for tuition and books
D)Workers' compensation
E)Unemployment compensation

Question 5

For 2011,the minimum percentage of Social Security benefits which must be included in a low income taxpayer's gross income is?

A)zero percent
B)50 percent
C)65 percent
D)85 percent
E)100 percent

Question 6

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

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

Question 7

Tax-free Employee fringe benefits:

A)May include accounts in which employees can set aside funds from their salary to cover public transportation to work and parking at work up to certain limits each month.
B)May include a dependent care plan which can only be used only to cover the costs of caring for a child.
C)May include payments for up to $100,000 for group term life insurance for employees.
D)Cover the cost of using a company car for personal purposes.
E)May include employee discounts on real estate investments.

Question 8

Under the Simplified Method for calculating the taxable amount for an annuity:

A)The amount paid for the annuity by the employee is recovered first.
B)The amount paid by the employee for the annuity is divided by a number based on the length of employment.
C)The amount paid in by the employee to the plan is divided by a number based on the age of the employee (or the employee and spouse)at the starting date of the annuity.
D)The investment in the annuity is divided by a number based on the age of the older annuitant at the starting date of the annuity when there is more than one annuitant (a joint and survivor annuity).
E)There are separate tables for "well" employees and "sick" employees.

Question 9

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

A)Payment of AICPA dues by the employer for the corporation's chief financial officer,who is a CPA.
B)The difference between wholesale and retail price on the sale at wholesale of extra copies of the book an author wrote
C)Having a secretary type a five-page paper for use in an employee's class.
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 10

Municipal bond interest:

A)Is taxable income both for federal and state tax purposes.
B)Is generally calculated at a higher interest rate than that used for corporate bonds.
C)Is a better source of income for taxpayers in high tax brackets than it is for taxpayers in the lowest tax brackets.
D)Is a better source of income for taxpayers in low tax brackets than it is for taxpayers in the highest tax brackets.
E)Provides an after-tax return calculated by dividing the municipal bond rate by the taxpayer's tax rate.

Question 11

Which of the following are not included in gross income?

A)Clergy fees and contributions.
B)Welfare payments.
C)Jury duty fees.
D)Punitive damages.
E)Gains from illegal activities.

Question 12

Which of the following amounts is not included in the gross income of the recipient?

A)Gambling winnings
B)Jury duty fees
C)Partnership income
D)Royalties
E)Gifts

Question 13

Which of the following is not taxable income for tax purposes?

A)Social Security income for high-income taxpayers
B)Income from real estate rental property
C)The fair value of services received in an exchange for services.
D)Gifts made in a personal setting;for example,a $10,000 gift by a parent to a child to help buy a house.
E)None of the above

Question 14

To the annuity holder,annuity payments are:

A)Fully includable in gross income.
B)Similar to life insurance proceeds in that they are excluded from gross income.
C)First considered to be a tax-free return of the original purchase price.
D)In part a return of the original purchase price and in part taxable income.
E)Revised any time the life expectancy of the annuitant changes.

Question 15

Twenty-year old Helen is a full-time student at Gordon College and is a candidate for a bachelor's degree.During 2011,she received the following amounts: Loan from college financial aid office $1,200
Cash support from parents 2,000
Ordinary cash dividend 600
Cash prize awarded in contest 200
Tuition scholarship 2,500
What is her adjusted gross income for 2011?

A)$6,500
B)$4,500
C)$3,300
D)$800
E)None of the above

Question 16

Taxpayers are required to file a Schedule B:

A)If they have interest income from more than one source,regardless of the amount.
B)If they have dividend income from more than one source,regardless of the amount.
C)If they have income both from interest and dividends,regardless of the amount.
D)If interest and dividends together total more than $500.
E)If interest or dividends total more than $1,500.

Question 17

Elsie and Elmer received $400 in qualifying dividends from the Virginiana Mutual Fund.Elmer and Elsie filed a joint income tax return for 2011 reporting $40,000 of taxable income including the dividends.If their tax rate on ordinary income is 15 percent,what is the tax rate for the dividends?

A)15 percent
B)25 percent
C)zero percent
D)5 percent
E)None of the above

Question 18

Life insurance proceeds:

A)Are generally included in gross income.
B)Are included in gross income if they are qualified accelerated benefits received before the death of the insured and used for long-term care.
C)Are never taxable.
D)Are included in gross income in full if they are received as periodic payments with interest.
E)Generally are excluded from gross income.

Question 19

Alimony payments:

A)Are deductible by the person receiving the payments and are income to the person making the payments.
B)Can be in the form of either cash or property.
C)Do not include payments made under a decree of separate maintenance.
D)Do not include payments made while the parties are living in the same household,even though they may be divorced or legally separated.
E)Must still be made after the death of the recipient.

Question 20

None of the following amounts are taxable income to the recipient except:

A)Medical insurance paid for by an employer
B)Unemployment compensation
C)Scholarships to cover books and tuition
D)Life insurance proceeds
E)Gifts