Question 1

Carl filed his tax return,properly claiming the head of household filing status.Carl's employer paid or provided the following to Carl: $$\begin{array} { | l | r | } 
\hline \text { Wages } & \$ 65,000 \
\hline \text { Fair market value of qualified dependent care services } & 4,000 \
\hline \text { Premiums for } \$ 50,000 \text { qualified group term life insurance } & 500 \
\hline \text { Medical insurance premiums } & 600 \
\hline
\end{array}$$ How much of this income should Carl report (assume benefits are provided on a nondiscriminatory basis)?
A)$65,000
B)$69,000
C)$69,500
D)$70,100

Accepted Answer

The answer of Carl filed his tax return,properly claiming the...

Question 2

Tim earns a salary of $40,000.This year,Tim's employer establishes a cafeteria plan under which Tim signed a salary reduction of $2,500 for which $1,500 is to cover his health insurance premiums and $1,000 is transferred to a flexible spending account to reimburse medical expenses.During the year,he is reimbursed $900 for medical expenses.What is the total taxable to Tim this year?
A)$37,500
B)$37,600
C)$38,400
D)$40,000

Accepted Answer

Tim's taxable income is $37,500. This is because his salary is $40,000, but he has a salary reduction of $2,500 for his health insurance premiums and flexible spending account. This means that his taxable income is $40,000 - $2,500 = $37,500.

Question 3

Melanie,a U.S.citizen living in Paris,France,for the last three years,earns a salary of $125,000 in 2019.Melanie's housing costs are $24,000 per year,which is reasonable.How much can Melanie exclude from income?
A)$122,844
B)$129,900
C)$112,956
D)$149,000

Accepted Answer

According to the IRS, for Tax Year 2019, the foreign earned income exclusion is $105,900. Additionally, Melanie can also exclude foreign housing costs that exceed a certain limit, which is calculated as the excess of the housing costs over 16% of the maximum Foreign Earned Income Exclusion amount ($105,900 x 0.16 = $16,944 for 2019). Therefore, Melanie can exclude $24,000 - $16,944 = $7,056 of her housing costs. 
Thus, her total exclusion is $105,900 + $7,056 = $112,956.

Question 4

For a taxpayer who is not insolvent nor under bankruptcy proceedings,the discharge of debt is generally
A)taxable.
B)nontaxable.
C)partially taxable.
D)None of the above.

Accepted Answer

Generally, if a taxpayer is not insolvent or under bankruptcy proceedings, the discharge of debt is taxable as income. The discharged amount is treated as cancellation of indebtedness (COD) income and must be reported on the taxpayer's tax return.

Question 5

Roma Company pays for group term life insurance on a non-discriminatory basis for all 100 of its workers.Which of the following individuals,all of whom work in the business,will be allowed to exclude the value of the coverage from her gross income?
A)Jamila is president and 51% shareholder of Roma Company which is a C corporation.
B)Fran is a managing partner of Roma partnership; she owns 5% of the business.
C)Tabitha is sole owner of Roma,a sole proprietorship.
D)Sally is a department manager and owns 3% of Roma,an S corporation.

Accepted Answer

Only Jamila, as the shareholder of a C corporation, can exclude the value of the coverage from her gross income. The other options (B, C, and D) are all owners of pass-through entities (partnership, sole proprietorship, and S corporation) and must include the value of the coverage in their gross income.

Question 6

Jillian has just accepted an offer from accounting firm for a full-time position after completion of her master's degree.In addition to paying a high salary and premiums on the basic health insurance policy,the firm will pay the benefits listed below.Which of the following benefits can be excluded (assume the benefits are provided on a non-discriminatory basis to all employees)?
A)season tickets for the local professional baseball team
B)repayment of $1,500 of employee student loans; payment is made directly to the lender
C)payment of eyecare coverage
D)All of the above are excluded.

Accepted Answer

The answer of Jillian has just accepted an offer from...

Question 7

Randy and Sharon are married and have two dependent children.Their 2019 tax and other related information is as follows:
 $\begin{array}{|l|r|}
\hline \text { Total salaries } & \$ 160,000 \
\hline \text { Bank account interest income } & 3,5000 \
\hline \text { Municipal bond interest income } & 1,500 \
\hline \text { Value of emplover provided medical insurance } & 12,500\\hline \text { Employerpaid premiums for } \$ 50,000 \text { of group term life insurance } & 5,500 \
\hline \text { Dividend income from ABC stock } & 2,000 \
\hline \text { Loan from Randy's parents } & 5,000 \\hline \text { Gift from Randy's parents } & 15,000 \
\hline \text { Gain from the sale of qualified small business stock acquired in } 2008 & 18,000 \
\hline \text { Total itemized deductions } & 27,000 \
\hline
\end{array}$ Compute Randy and Sharon's taxable income.(Show all calculations in good form.)

Accepted Answer

The answer of Randy and Sharon are married and have...

Question 8

In 2017 Bonnie,a sole proprietor,loaned her employee,John,$10,000 to help him buy a car.In 2019,before he repaid the $10,000,Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance.How should John treat the amount forgiven?
A)taxable income in year of loan
B)taxable income in year of forgiveness
C)excludible gift in year of loan
D)excludible gift in year of forgiveness

Accepted Answer

When a debt is forgiven, it is generally considered taxable income to the borrower in the year of forgiveness. In this case, Bonnie forgave the $10,000 loan in 2019, so John should treat it as taxable income in that year. Option A is incorrect because the loan was not Bonnie's taxable income in the year it was made. Option C is incorrect because the loan was not a gift - it was a loan that was later forgiven. Option D is incorrect because, while the forgiveness may be considered a gift, it would not be excludible under the annual exclusion amount since it was greater than $15,000 (the 2019 exclusion amount).

Question 9

This year,Jason sold some qualified small business stock that he acquired in 2008.His basis in the stock was $100,000 and he sold it for $400,000,resulting in a $300,000 gain.How much of Jason's gain is taxable?
A)$0
B)$300,000
C)$150,000
D)$75,000

Accepted Answer

If Jason held the qualified small business stock for more than five years, he may be able to exclude up to 50% of the gain from his taxable income. In this case, 50% of the $300,000 gain would be $150,000, which would be taxable. Therefore, the correct answer is C.

Question 10

The discharge of certain student loans is excluded from income if all of the following are present except for
A)the loan must have been made by governmental,educational,or charitable organizations.
B)the loan proceeds must have been used to pay the cost of attending an education institution or used to refinance outstanding student loans.
C)the loan forgiveness must be contingent upon the individual's working for a specified period of time in certain professions.
D)the loan forgiveness is based on age.

Accepted Answer

The discharge of student loans is excluded from income if the loan meets all three criteria: 1) made by governmental, educational, or charitable organizations, 2) used to pay for education or refinancing outstanding student loans, and 3) forgiveness is contingent upon working in certain professions for a specified period of time. The discharge is not based on age.

Question 11

This year,Jonathan sold some qualified small business stock that he acquired in December 2010.His basis in the stock was $100,000 and he sold it for $400,000,resulting in a $300,000 gain.How much of Jason's gain is taxable?
A)$0
B)$300,000
C)$150,000
D)$75,000

Accepted Answer

The gain on the sale of qualified small business stock is eligible for a 100% exclusion from federal income tax, provided that the stock was held for more than five years. In this case, Jonathan held the stock for more than five years, so his entire gain of $300,000 is tax-free.

Question 12

In 2017 Betty loaned her son,Juan,$10,000 to help him buy a car.In 2019,before he repaid the $10,000,Betty told Juan that she was "tearing up" the $10,000 note as a graduation present.How should Juan treat the amount forgiven?
A)taxable income in year of loan
B)taxable income in year of forgiveness
C)excludible gift in year of loan
D)excludible gift in year of forgiveness

Accepted Answer

The forgiven amount should be treated as an excludible gift in the year of forgiveness. According to the IRS, a gift is "any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return." In this case, Juan did not receive full consideration in return for the forgiveness of the loan. As a result, the forgiven amount is considered a gift and can be excluded from taxable income up to the annual gift tax exclusion amount (which was $15,000 in 2019).

Question 13

Jan has been assigned to the Rome office of ABC Corporation.She arrives in Rome on November 1,2018 and does not return to the United States until March 5,2020.During her stay in Rome,Jan earned $112,000 in 2019.Jan may exclude
A)$0.
B)$14,826.
C)$105,900.
D)$112,000.

Accepted Answer

Jan meets both the physical presence test and the bona fide residence test, allowing her to exclude her foreign earned income up to the maximum amount ($105,900 for tax year 2019).

Question 14

Ahmad's employer pays $10,000 in tuition this year for Ahmad to attend a graduate business program.How much of the employer-provided tuition is taxable to Ahmad?
A)$0
B)$4,750
C)$5,250
D)$10,000

Accepted Answer

The answer of Ahmad's employer pays $10,000 in tuition this...

Question 15

In September of 2019,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 17 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.How much of the gain will she recognize?
A)$0
B)$100,000
C)$800,000
D)$900,000

Accepted Answer

The gain is not recognized because the taxpayer purchased other qualified small business stock within 45 days of the sale.

Question 16

Exter Company is experiencing financial difficulties.It has assets worth $2 million,but owes liabilities of $2.1 million.It has a longstanding relationship with the bank.The bank has agreed to forgive $300,000 of debt principal.Because of this debt forgiveness,Exter will recognize income of
A)$0.
B)$100,000.
C)$200,000.
D)$300,000.

Accepted Answer

According to the question, the bank forgives $300,000 of debt principal. This means that Exter's liabilities will decrease by $300,000. As a result, Exter's assets ($2 million) will exceed its liabilities ($1.8 million), resulting in a net increase in Exter's equity. This increase in equity represents income for Exter. Hence, Exter will recognize income of $200,000 (the difference between the forgiven debt principal of $300,000 and the remaining liabilities of $100,000). Therefore, the best choice is C.

Question 17

Chad and Jaqueline are married and have AGI of $150,000.In 2019 they adopted a child,while taking advantage of their employer's written adoption assistance program.The adoption cost $9,500,all of which was paid by the employer in accordance with the adoption plan.How much of the employer-paid adoption costs may be excluded from their income?
A)$0
B)$5,000
C)$5,250
D)$9,500

Accepted Answer

According to IRS rules, taxpayers can exclude up to $14,080 of employer-provided adoption assistance from their income in 2019. However, the exclusion is subject to a phase-out for taxpayers with higher incomes. In this case, Chad and Jaqueline have AGI of $150,000, which falls within the phase-out range. The phase-out range for 2019 is between $211,160 and $251,160. To calculate the amount of the exclusion, we need to use the formula: $14,080 - ($150,000 - $211,160) x 0.05. Plugging in the numbers, we get an exclusion of $9,500. Therefore, the correct answer is D, which represents the full amount of the employer-paid adoption costs that can be excluded from their income.

Question 18

Rick chose the following fringe benefits under his employer's cafeteria plan.Which of his chosen benefits will be taxable?
A)$150 cash per pay period
B)medical insurance on his family
C)dental insurance
D)group term life insurance coverage of $20,000

Accepted Answer

Cash payments are taxable income and subject to withholding taxes, whereas the other three benefits (medical insurance, dental insurance, and group term life insurance) are not taxable.

Question 19

Connor owes $4 million and has assets of only $1 million.He declares and files personal and business bankruptcy and his creditors approve a payment plan of $.25 per dollar.Connor has a net operating loss carryover of $2 million.The remaining 75 percent of his debt will be canceled.Connor must recognize income of
A)$0.
B)$1 million.
C)$2 million.
D)$3 million.

Accepted Answer

Connor does not have to recognize income from the cancellation of debt because he is insolvent, meaning his liabilities exceed his assets. The cancellation of debt income is excluded from taxable income in such cases.

Question 20

In September of 2019,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 17 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.What is the basis in the new stock she purchased?
A)$200,000
B)$300,000
C)$800,000
D)$1,100,000

Accepted Answer

The answer of In September of 2019,Michelle sold shares of...

Quiz 20: Gross Income: Exclusions

Melanie,a U.S.citizen living in Paris,France,for the last three years,earns a salary of $125,000 in 2019.Melanie's housing costs are $24,000 per year,which is reasonable.How much can Melanie exclude from income?

For a taxpayer who is not insolvent nor under bankruptcy proceedings,the discharge of debt is generally

Roma Company pays for group term life insurance on a non-discriminatory basis for all 100 of its workers.Which of the following individuals,all of whom work in the business,will be allowed to exclude the value of the coverage from her gross income?

In 2017 Bonnie,a sole proprietor,loaned her employee,John,$10,000 to help him buy a car.In 2019,before he repaid the $10,000,Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance.How should John treat the amount forgiven?

This year,Jason sold some qualified small business stock that he acquired in 2008.His basis in the stock was $100,000 and he sold it for $400,000,resulting in a $300,000 gain.How much of Jason's gain is taxable?

The discharge of certain student loans is excluded from income if all of the following are present except for

This year,Jonathan sold some qualified small business stock that he acquired in December 2010.His basis in the stock was $100,000 and he sold it for $400,000,resulting in a $300,000 gain.How much of Jason's gain is taxable?

In 2017 Betty loaned her son,Juan,$10,000 to help him buy a car.In 2019,before he repaid the $10,000,Betty told Juan that she was "tearing up" the $10,000 note as a graduation present.How should Juan treat the amount forgiven?

Jan has been assigned to the Rome office of ABC Corporation.She arrives in Rome on November 1,2018 and does not return to the United States until March 5,2020.During her stay in Rome,Jan earned $112,000 in 2019.Jan may exclude

Ahmad's employer pays $10,000 in tuition this year for Ahmad to attend a graduate business program.How much of the employer-provided tuition is taxable to Ahmad?

In September of 2019,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 17 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.How much of the gain will she recognize?

Exter Company is experiencing financial difficulties.It has assets worth $2 million,but owes liabilities of $2.1 million.It has a longstanding relationship with the bank.The bank has agreed to forgive $300,000 of debt principal.Because of this debt forgiveness,Exter will recognize income of

Rick chose the following fringe benefits under his employer's cafeteria plan.Which of his chosen benefits will be taxable?