Deck 2: Gross Income and Exclusions

Question 1

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Receipt of alimony in 2019 from a 2016 divorce

Answer 1

a

Question 2

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 these

Answer 2

D

Question 3

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

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

Answer 3

C

Question 4

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

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

Question 5

Bonnie receives salary income of $32,000, unemployment compensation of $4,400, and interest income of $1,200 and a gift of $7,000 in cash from her aunt. How much gross income does Bonnie have?

Question 6

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 7

Which of the following is excluded from gross income?

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

Question 8

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

Question 9

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 10

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

Question 11

Mary received the following items during the current year: $\begin{array}{lr}\text { Christmas bonus from her employer } & \$ 600 \\\text { Christmas gift from her father } & \$ 100 \\\text { Unemployment compens ation } & \$ 35\end{array}$ What is the total amount of the above items that must be included in Mary's current year gross income?

A)$0
B)$100
C)$135
D)$600
E)$635

Question 12

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 13

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 14

Barry has a successful methamphetamine laboratory. Producing methamphetamine is illegal under federal law. Is Barry required by law to report the income from his lab on his tax return? Why?

Question 15

Which of the following is not taxable income?

A)Dividends
B)Hobby income
C)Interest
D)Royalties
E)Welfare benefits

Question 16

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 these

Question 17

Which of the following is generally excluded from gross income?

A)Dividends
B)Rewards
C)Disability benefits
D)Partnership income
E)None of these

Question 18

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 19

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 these

Question 20

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

Question 21

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Inheritances

Question 22

Elsie received the following distributions from Virginiana Mutual Fund for the calendar year 2019: $$\begin{array} { l r } \text { Ordinary dividends (nonqualifying) } & \$ 250 \\\text { Capital gain distributions } & \$ 170 \\\text { Nontaxable distributions } & \$ 80\end{array}$$ Elmer, Elsie's husband, did not own any of the Virginiana Mutual Fund shares, but he 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 2019. What portion of the distributions from Virginiana Mutual Fund is taxable as ordinary income on their 2019 individual income tax return?

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

Question 23

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Municipal bond interest

Question 24

Interest on US Treasury Bonds is not taxable.

Question 25

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Unemployment compensation

Question 26

Arthur, age 19, is a full-time student at Gordon College and is a candidate for a bachelor's degree. During 2019, he received the following amounts: $$\begin{array} { l r } \text { Tuition scholarship } & \$ 2,400 \\\text { Loan from college financial aid office } & \$ 1,000 \\\text { Cash support from parents } & \$ 2,000 \\\text { Ordinary cash dividend } & \$ 200 \\\text { Cash prize awarded in contest } & \$ 300\end{array}$$ What is his adjusted gross income for 2019?

A)$300
B)$500
C)$2,300
D)$2,500
E)None of these

Question 27

Elmer received the following distributions from Virginiana Mutual Fund for the calendar year 2019: $$\begin{array} { l r } \text { Ordinary dividends } & \$ 250 \\\text { Capital gain distributions } & \$ 170 \\\text { Nontaxable distributions } & \$ 80\end{array}$$ Elsie, Elmer's wife, did not own any of the Virginiana Mutual Fund shares, but she did receive $1,475 in interest on a savings account at the Moss National Bank and $175 in interest on California Municipal Bonds. Elmer and Elsie filed a joint income tax return for 2019. What amount is reportable as taxable interest income?

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

Question 28

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

Question 29

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Scholarships for tuition and books

Question 30

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Farm income

Question 31

Craig, a single taxpayer, received the following items in 2019: dividends of $450, wages of $32,000, child support from his ex-spouse of $400 per month, a new television worth $1,200 from a door prize at a conference he attended, a gift of $3,000 from Craig's parents, and $200 of interest on bonds issued by the State of Arizona. Craig put $4,000 of his wages into his employer's dependent care flexible spending account (the $4,000 has not been deducted from the $32,000 of wages listed previously). He also receives a reimbursement of $270 per month to pay for public transportation passes each month (the monthly reimbursement of $270 has not been deducted from the $32,000 of wages). Based on the above, what is Craig's gross income in 2019?

Question 32

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Wages

Question 33

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Lottery winnings

Question 34

In 2019, Uriah received the following interest payments: Interest of $300 on an overpayment of 2018 Federal income taxes
Interest of $400 from his bank certificate of deposit.
Interest of $1,000 on municipal bonds
Interest of $1,500 on US savings bonds (Series HH)
What amount, if any, should Uriah report as taxable interest income on his 2019 individual income tax return?

A)$0
B)$700
C)$2,200
D)$3,200
E)None of these

Question 35

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Reimbursement of hospital expenses from a health insurance plan

Question 36

Tim, a single taxpayer, receives $500 of qualified dividends from Exxon in the current year. His taxable income before the dividends is $26,000. Tim's tax on the dividends will be:

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

Question 37

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

Question 38

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Life insurance proceeds received upon the death of a family member

Question 39

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

Question 40

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year.
a. Included
b. Excluded
Child support payments

Question 41

If a taxpayer holding EE bonds makes an election with respect to the taxation of the bonds, how is the interest which accrues on the bonds, but is not paid, taxed each year?

Question 42

Basketball superstar Steph Curry's outstanding player award is not includible in income, since the award is in recognition of his outstanding performance.

Question 43

Under a divorce agreement executed in 2014, Bob is required to pay his ex-wife, Carol, $3,000 a month until their youngest daughter is 21 years of age. At that time, the required payments are reduced to $2,000 per month.
a.How much of each $3,000 payment may be deducted as alimony by Bob?
b.How much of each $3,000 payment must be included in Carol's taxable income?

Question 44

Jerry and Sally were divorced under an agreement executed July 1, 2019. 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 these

Question 45

If a divorce agreement executed in the 2017 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 46

As part of the property settlement related to their 2019 divorce, Stella must give Peter the house that they have been living in, while she gets 100 percent of their savings accounts. The house was purchased in Texas 15 years ago for $100,000 and is now worth $110,000. How much gain must Stella recognize on the transfer of the house to Peter? What is Peter's tax basis in the house for calculating any future sale of the house?

Question 47

Laura and Leon were granted a divorce in 2008. In accordance with the decree, Leon made the following payments to Laura in 2019: Child support payments contingent on the age of the child $\quad \$ 6,000$
Indefinite periodic payments terminating on Laura's death $\quad \$ 4,000$ How much of the payments can he deduct as alimony in 2019?

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

Question 48

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 49

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

Question 50

Laura and Leon were granted a divorce in 2019. In accordance with the decree, Leon made the following payments to Laura in 2019: Child support payments contingent on the age of the child Annual cash payments, other than child support, specified as alimony in the divorce agreement How much should Laura include in her 2019 taxable income as alimony?

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

Question 51

Marie had a good year. She received the following prizes and awards: - an iPad from The Famous Daytime Talk 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)$11,600; the plaque may be excluded
E)$11,625; everything is included at the highest amount

Question 52

In 2019, what rate would a single taxpayer pay on qualified dividend income:
a.If in the 37 percent bracket?
b.If in the 24 percent bracket?

Question 53

Steve and Laura were divorced in 2012. 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 2019 included in his income?

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 54

Peter is required by his 2019 divorce agreement to pay alimony of $4,000 a month and child support of $6,000 a month to his ex-wife Stella. What is the tax treatment of these two payments?
To Peter?
To Stella?

Question 55

Qualified dividends are given special tax treatment. Describe how they are taxed in 2019.

Question 56

Roger is required under a 2012 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 these

Question 57

Under a divorce agreement executed in 2017, periodic payments of either cash or property must be made at regular intervals to be deductible as alimony.

Question 58

Under the terms of a property settlement executed during the current year, Cindy transferred a house worth $350,000 to her ex-husband, Carl. The property has a tax basis to Cindy of $300,000.
a.How much taxable gain or loss must be recognized by Cindy at the time of the transfer?
b.What is Carl's tax basis in the property he received from Cindy?

Question 59

Richard and Alice are divorced and under the terms of their written divorce agreement signed on December 30, 2011, Richard was required to pay Alice $1,500 per month of which $600 was designated as child support. He made 12 such payments in 2019. Additionally, Richard voluntarily paid Alice $1,200 per month for 12 months of 2019, no portion of which was designated as child support. Assuming that Alice has no other income, her tax return for 2019 should show gross income of:

A)$0
B)$7,200
C)$10,800
D)$18,000
E)None of these

Question 60

For divorces after 1984 but before 2019, 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 61

Richard, who retired on April 30, 2019, receives a monthly employee annuity benefit of $1,400 payable for life, beginning May 1, 2019. During his years of employment, Richard contributed $29,400 to the company's plan. Richard's age on May 1 is 66. Using the simplified method, how much of the $11,200 annuity payment received during 2019 may Richard exclude from gross income?

A)$427
B)$1,120
C)$1,680
D)$11,200
E)None of these

Question 62

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 63

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

Question 64

If an annuitant, whose annuity starting date was January 1, 2008, dies before recovering his or her investment in the annuity, any unrecovered investment is recognized as a miscellaneous itemized deduction on the annuitant's tax return for the year of death.

Question 65

In June of the current year, Rob's wealthy stepmother died and left him a stock portfolio worth $600,000. Before she died, she gave him a gift of $20,000 in cash. How much of these amounts, if any, are taxable to Rob? Why?

Question 66

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 67

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

Question 68

Helga receives a $300,000 life insurance payment when her boyfriend Andy dies. How much of the payment is taxable to Helga?

Question 69

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 of last year, and in the current year Penelope received a payment of $5,200 from the insurance company. What amount should she include in her gross income for the current year?

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

Question 70

Van is sick and tired of his job. His doctor certifies that his health may be compromised if he continues to work at his current job. He sells his life insurance policy to Life Settlements, Inc. for $50,000 so he can take a break from work. He has paid $10,000 so far for the policy. How much of the $50,000 must Van include in his taxable income?

Question 71

Rob is 8 years old and won a sports car valued at $30,000 in a drawing at Disneyland this year. How much income, if any, must Rob report on his tax return for this year? Why?

Question 72

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 by 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 game show
D)A Mustang GT given to the taxpayer by his brother
E)None of the above would be considered taxable

Question 73

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 74

Cynthia, age 64, retired in June. Starting in July, Cynthia received $2,000 per month from an annuity. She has contributed $260,000 to the annuity. Her life expectancy is 20 years. How much is excluded from income using the simplified method? Use 260 as the factor to divide by.

1. Enter total amount received this year
2. Enter cost in plan at the annuity starting date
3. Factor at annuity starting date 260
4. Divide line 2 by line 3
5. Multiply line 4 by the number of monthly payments this year
6. Amount, if any, recovered tax free in prior years
7. Subtract line 6 from line 2
8. Enter the smaller of line 5 or 7
9. Taxable amount this year. Subtract line 8 from line 1

Question 75

In June of the current year, a wealthy aunt gave Janie a stock portfolio worth $150,000. During the year, she collects $4,000 in dividends. How much of these amounts, if any, should Janie include in gross income for the current year? Why?

Question 76

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

Question 77

Ordinarily life insurance proceeds are excluded from gross income. Why would they be taxable if the policy had been transferred for valuable consideration, prior to the death of the insured?

Question 78

Sam died on January 15, 2011 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 these

Question 79

Toby transfers to Jim a life insurance policy with a face value of $25,000 and a cash value of $5,000 in payment of a personal debt. Jim continues to make premium payments on the policy until Toby's death. At that time, Jim had paid $1,500 in premiums.
a.How much income must Jim report when he receives the $25,000 in proceeds?
b.Would your answer be different if Toby and Jim were partners in a partnership? Why?

Question 80

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.