Question 1

Payments from an annuity purchased from an insurance company are not taxable until the taxpayer has recovered the purchase price of the annuity.

Accepted Answer

The answer of Payments from an annuity purchased from an...

Question 2

Which of the following statements is false?

Accepted Answer

Municipal bond interest is generally exempt from federal income taxes, and sometimes state and local taxes, making it tax-free for investors.

Question 3

With some exceptions,amounts withdrawn from a pension plan prior to the normal starting date are subject to a ten percent nondeductible penalty.

Accepted Answer

Withdrawals from a pension plan before the normal starting date may be subject to a ten percent penalty, unless an exception applies (such as disability, death, or certain hardship distributions). The penalty is in addition to any income tax owed on the withdrawal amount.

Question 4

Carla redeemed EE bonds which qualify for the educational exclusion.The redemption consisted of $14,000 principal and $6,000 interest.The net qualifying educational expenses are $10,000.Her AGI is below the threshold for phase-out of the exclusion.The taxable interest is

Accepted Answer

The answer of Carla redeemed EE bonds which qualify for...

Question 5

The recipient of a taxable stock dividend includes the value of the stock received in gross income and that amount becomes the basis for the stock received.

Accepted Answer

When a taxable stock dividend is received, the value of the stock received is included in the recipient's gross income, and this amount becomes the basis for the newly acquired stock.

Question 6

Property settlements made incident to a divorce have no immediate tax consequences;that is,the transfer from one spouse to another is not taxable.

Accepted Answer

Property settlements made incident to a divorce are treated as tax-neutral transfers, meaning they are not subject to immediate tax consequences.

Question 7

Mike won $700 in a football pool.This amount is not taxable.

Accepted Answer

The answer of Mike won $700 in a football pool.This...

Question 8

In December 2016,Max,a cash-basis taxpayer,rents an apartment to Kadeem.Max receives both the first and last months' rent totaling $1,800 plus a security deposit of $400.The amount of income reported by Max as taxable in 2016 is

Accepted Answer

As a cash-basis taxpayer, Max must report income when it is received. The first and last months' rent totaling $1,800 is considered income in 2016. The security deposit is not income unless it is forfeited or used for repairs.

Question 9

Which of the following bonds do not generate tax-exempt federal income?

Accepted Answer

A)There is no provision in the Code to exclude interest income from U.S.Treasury bonds.

Question 10

Income from illegal activities is taxable.

Accepted Answer

According to the Internal Revenue Service (IRS), all income, including income from illegal activities, is taxable and must be reported on a tax return. This includes income from activities such as gambling, drug dealing, and prostitution. Failure to report this income can result in legal consequences, including fines and imprisonment.

Question 11

Social Security benefits are excluded from taxation for all taxpayers.

Accepted Answer

Social Security benefits can be taxed depending on the recipient's income level. If an individual's combined income (adjusted gross income plus nontaxable interest plus half of their Social Security benefits) exceeds certain thresholds, a portion of their benefits may be subject to taxation.

Question 12

Becky wins a car and furniture on a television game show.The fair market value of these items is taxable to Becky.

Accepted Answer

Any winnings from a game show, including cars and furniture, are considered taxable income and their fair market value must be reported on the recipient's tax return.

Question 13

Amy's employer provides her with several fringe benefits.Which of the following are included in her taxable income?

Accepted Answer

A Christmas bonus check is considered taxable income as it is a form of additional compensation. The other options are generally not included in taxable income under certain conditions.

Question 14

A key factor in determining tax treatment of distributions from qualified retirement plans is whether the employee made pre-tax or after-tax contributions.

Accepted Answer

This statement is true. The tax treatment of distributions from qualified retirement plans, such as a 401(k) or traditional IRA, is determined in part by whether the employee made pre-tax (i.e. deductible) or after-tax (i.e. non-deductible) contributions to the plan. Distributions from pre-tax contributions are generally subject to income tax, while distributions from after-tax contributions are generally tax-free.

Question 15

Jing,who is single,paid educational expenses of $16,000 in 2016.He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000.Jing's has other adjusted gross income of $81,550.With respect to the $3,000 of bond interest,Jing must include in taxable income

Accepted Answer

Jing is eligible to exclude the bond interest from taxable income since she paid educational expenses during the year. However, only the amount of bond interest that exceeds the amount of educational expenses paid can be excluded. In this case, the total amount of education expenses paid is $16,000. Therefore, Jing can exclude up to $3,000 - $16,000 = -$13,000 of bond interest. Since the result of this calculation is negative, Jing can exclude the entire $3,000 of bond interest from taxable income, and the answer is C.

Question 16

In order to be treated as alimony for tax purposes,payments must be made in cash.

Accepted Answer

Payments made in cash are the only ones that can be treated as alimony for tax purposes. Other forms of payment, such as property transfers or payments made on behalf of the recipient, do not qualify.

Question 17

Alimony received is taxable to the recipient while child support payments are not.

Accepted Answer

Alimony is considered income and is taxable to the recipient, while child support is not considered income and therefore not taxable.

Question 18

Jacob,who is single,paid educational expenses of $16,000 in 2016.He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000.Jacob has other adjusted gross income of $81,550.The $3,000 exclusion must be reduced by

Accepted Answer

The answer of Jacob,who is single,paid educational expenses of $16,000...

Question 19

Unemployment compensation is exempt from federal income tax.

Accepted Answer

Unemployment compensation is subject to federal income tax. However, it may be exempt from state income tax in some states.

Question 20

In December of this year,Jake and Stockard,a married couple,redeemed qualified Series EE U.S.Savings Bonds.The proceeds were used to help pay for their daughter's college tuition.Jake and Stockard received proceeds of $8,000 representing principal of $5,000 and interest of $3,000.The qualified higher educational expenses they paid this year totaled $6,000.Their AGI is below the threshold for phase-out of the exclusion.What is the amount of interest income Jake and Stockard can exclude from their income this year?

Accepted Answer

The answer of In December of this year,Jake and Stockard,a...

Quiz 3: Gross Income: Inclusions