Question 1

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

Accepted Answer

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?

Accepted Answer

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.

Accepted Answer

Under the tax code, transfers of property between spouses or incident to divorce are generally not recognized as taxable events. Therefore, Rosalind recognizes no gain on the transfer, and Carl's tax basis in the property is the same as Rosalind's original basis, which is $120,000.

Question 4

Which of the following is not excluded from gross income?

Accepted Answer

Unemployment compensation is generally included in gross income for tax purposes, unlike the other options listed which are typically excluded.

Question 5

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

Accepted Answer

For low-income taxpayers, Social Security benefits may not be taxable, meaning zero percent of the benefits are included in gross income.

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?

Accepted Answer

Under the tax law applicable to divorce decrees executed before 2019, alimony payments are deductible by the payer. Harold's $500 alimony payment is deductible, but child support and voluntary payments are not.

Question 7

Tax-free Employee fringe benefits:

Accepted Answer

Transportation fringe benefits, such as public transportation and parking, can be provided tax-free up to certain limits.

Question 8

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

Accepted Answer

The Simplified Method divides the amount paid by the employee for the annuity by a number based on the age of the employee (or the employee and spouse) at the starting date of the annuity to determine the taxable portion.

Question 9

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

Accepted Answer

A discount on investment real estate is considered taxable income to the employee because it is not a qualified employee discount under IRS rules.

Question 10

Municipal bond interest:

Accepted Answer

Municipal bond interest is often exempt from federal taxes and sometimes state taxes, making it more attractive to those in higher tax brackets who benefit more from the tax exemption.

Question 11

Which of the following are not included in gross income?

Accepted Answer

Welfare payments are not included in gross income as they are considered a form of government assistance and are not taxable.

Question 12

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

Accepted Answer

Gifts are not included in the gross income of the recipient as they are considered non-taxable under the Internal Revenue Code.

Question 13

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

Accepted Answer

Gifts made in a personal setting are generally not taxable income for tax purposes. However, if the gift exceeds a certain amount (currently $15,000 per year), the donor may need to file a gift tax return. Social Security income, income from real estate rental property, and the fair value of services received in an exchange for services are all generally considered taxable income.

Question 14

To the annuity holder,annuity payments are:

Accepted Answer

Annuity payments consist of both a return of the original purchase price (which is not taxable) and taxable income. The portion that represents the return of the original purchase price is excluded from gross income. The amount of the exclusion is determined by dividing the cost of the annuity by the expected return (the total amount of annuity payments expected to be received over the lifetime of the annuitant). Once the exclusion has been used up, the entire annuity payment is fully taxable. The life expectancy of the annuitant does not affect the taxation of the annuity payments.

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?

Accepted Answer

The adjusted gross income includes only the ordinary cash dividend of $600 and the cash prize of $200, totaling $800. The loan, cash support from parents, and tuition scholarship are not taxable income.

Question 16

Taxpayers are required to file a Schedule B:

Accepted Answer

Taxpayers are required to file a Schedule B if their 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?

Accepted Answer

The tax rate for qualifying dividends is typically lower than the tax rate on ordinary income. In this case, since the dividends are qualifying dividends, they are taxed at a rate of zero percent for taxpayers in the 15 percent tax bracket. Therefore, Elmer and Elsie do not owe any tax on the $400 in qualifying dividends.

Question 18

Life insurance proceeds:

Accepted Answer

Generally, life insurance proceeds are excluded from gross income and are not taxable. However, there are some exceptions, such as if the proceeds are received as periodic payments with interest.

Question 19

Alimony payments:

Accepted Answer

Alimony payments do not include those made while the parties are living in the same household, even if they are divorced or legally separated.

Question 20

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

Accepted Answer

Unemployment compensation is considered taxable income by the IRS, whereas the other options are generally not taxable.

Quiz 2: Gross Income and Exclusions