Question 1

Janine's employer loaned her $5,000 this year (interest-free)to buy a used car. If the federal interest rate was 4 percent, which of the following is correct?

Accepted Answer

The answer of Janine's employer loaned her $5,000 this year...

Question 2

Graham has accepted an offer to do graduate work in the chemistry department at State University. The chemistry department offered Graham a $5,000 tuition reduction and $3,500 toward the cost of room and meals. Under the terms of the scholarship Graham must work in the chemistry labs during the summer as a research assistant. What amount must Graham include in his gross income?

Accepted Answer

The $3,500 provided for room and meals is considered taxable income, as it is not used directly for tuition or course-related expenses. The $5,000 tuition reduction is not taxable as it is a qualified scholarship used for tuition.

Question 3

In January of the current year, Dora made a gift of stock to her granddaughter. At the time of the gift, the stock was worth $15,000. Several months later in the same year after the gift, a $500 dividend was declared on the stock and paid to Dora's granddaughter. What amount must Dora's granddaughter include in her gross income for the current year?

Accepted Answer

Dividends received by the granddaughter from the gifted stock are considered income to her. The value of the stock at the time of the gift is not included in her gross income, only the dividends received. Since none of the choices accurately reflect just the dividend amount ($500), the correct answer is that none of the choices are correct.

Question 4

Irene's husband passed away this year. After his death, Irene received $250,000 of proceeds from life insurance on her husband, and she inherited her husband's stock portfolio, worth $750,000. What amount must Irene include in her gross income?

Accepted Answer

Life insurance proceeds received upon the death of the insured are generally not taxable and do not need to be included in gross income. Similarly, inherited property, such as stocks, is not taxable income to the beneficiary (though there may be implications for capital gains tax when the stocks are sold, based on their value at the time of inheritance). Therefore, Irene does not have to include any of these amounts in her gross income.

Question 5

Ben received the following benefits from his employer this year. What amount must Ben include in his gross income?

Accepted Answer

The answer of Ben received the following benefits from his...

Question 6

Shaun is a student who has received an academic scholarship to State University. The scholarship paid $14,000 for tuition, $2,500 for fees, and $1,000 for books. In addition, Shaun's dormitory fees of $8,500 were paid by the university when he agreed to counsel freshman on campus living. What amount must Shaun include in his gross income?

Accepted Answer

$8,500. According to IRS guidelines, scholarships that cover tuition, fees, and books are not taxable. However, payments for services, such as counseling, must be included in gross income. Therefore, Shaun must include the $8,500 for dormitory fees in his gross income, as this was compensation for services rendered.

Question 7

Joyce's employer loaned her $50,000 this year (interest-free)to buy a new car. If the federal interest rate was 3 percent, which of the following is correct?

Accepted Answer

Imputed compensation income is the increase in an employee's compensation when the employer provides a benefit such as an interest-free loan. The imputed compensation income for an interest-free loan is calculated by multiplying the amount of the loan by the federal interest rate. Therefore, Joyce recognizes $1,500 of imputed compensation income ($50,000 x 0.03 = $1,500).

Question 8

This year, Fred and Wilma, married filing jointly, sold their home (sales price $750,000; cost $200,000). All closing costs were paid by the buyer. Fred and Wilma owned and lived in their home for 20 years. How much of the gain is included in gross income?

Accepted Answer

The answer of This year, Fred and Wilma, married filing...

Question 9

Hank is a U.S. citizen and is doing a three- to six-year assignment as a sales executive in Paris for a French company. The assignment began this year. Hank earned $109,500 working for the French company this year but only lived in France for 180 days (out of 365 days). He will live full time in France next year. What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the United States (rounded to the nearest hundred dollars)?

Accepted Answer

The answer of Hank is a U.S. citizen and is...

Question 10

Sam, age 45, saved diligently for his college education by putting part of his pay into U.S. Series EE savings bonds. Sam purchased the bonds for $6,500, and this year he redeemed the bonds for $7,200. He has no other income this year. What amount must Sam include in his gross income?

Accepted Answer

When Sam redeems the bonds for $7,200, he realizes a gain of $700. This gain is taxable income and must be included in Sam's gross income. However, if Sam uses at least some portion of the proceeds to pay for his qualified higher education expenses (tuition and fees), he may be eligible to exclude some or all of the bond income from his gross income. Therefore, the correct answer is D because while he must include the income in his gross income, he may be able to exclude some of it.

Question 11

NeNe is an accountant and a U.S. citizen who has accepted a permanent position in Madrid, Spain, for a Spanish financial services company. This year, NeNe spent the entire year working in Madrid. NeNe's employer paid $40,000 of her Madrid housing expenses this year. What amount of the $40,000 housing payments may NeNe exclude?

Accepted Answer

The answer of NeNe is an accountant and a U.S....

Question 12

Deb has found it very difficult to repay her loans. Because of these difficulties, the bank decided to forgive one of her most recent loans, an amount of $45,000. After the loan was discharged, Deb had total assets of $232,000 and her remaining loans totaled $217,000. What amount must Deb include in her gross income?

Accepted Answer

Deb's assets after the loan discharge were $232,000 and her remaining loans totaled $217,000, which means that her net worth was $15,000 ($232,000 - $217,000). Since the forgiven loan amount was $45,000, Deb's liabilities decreased by that amount, resulting in a net increase in her net worth to $60,000 ($15,000 + $45,000). However, the amount of debt forgiven is considered taxable income by the IRS, so Deb must include $15,000 ($60,000 - $45,000) in her gross income. Therefore, the correct answer is A) $15,000.

Question 13

Brenda has $15,000 in U.S. Series EE savings bonds and she is considering whether to cash in the bonds. Under what conditions can Brenda exclude the interest on the savings bonds from her gross income?

Accepted Answer

In order for Brenda to exclude the interest on her savings bonds from her gross income, she must meet all three of these conditions: using the proceeds for higher education expenses (A and C), having a modified AGI below a certain phase-out range (B), and fulfilling the requirement for who can use the funds (C). Therefore, D is the correct choice.

Question 14

Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes)?

Accepted Answer

The answer of Mike received the following interest payments this...

Question 15

Karl works at Moe's grocery. This year Karl was paid $43,000 in salary, but he was allowed to purchase his groceries at 10 percent below Moe's cost. This year Karl spent $3,600 to purchase groceries, costing Moe $4,000. The groceries were worth $6,000. What amount must Karl include in his gross income?

Accepted Answer

Karl's salary of $43,000 is already included in his gross income. The 10 percent discount he receives on groceries is considered a fringe benefit and must be included in his gross income. Karl's discounted grocery purchases cost Moe $3,600, which is less than the actual value of the groceries ($6,000). Therefore, the difference of $2,400 is considered a fringe benefit and must be included in Karl's gross income, bringing his total to $43,000 + $2,400 = $43,400.

Question 16

Helen is a U.S. citizen and a CPA who moved to London, England, three years ago to work for a British company. This year, she spent the entire year in London and earned a salary of $110,000. How much of her salary will she be allowed to exclude from gross income in the United States?

Accepted Answer

Helen can use the foreign earned income exclusion to exclude up to $105,900 of her salary from gross income on her U.S. tax return, since she meets the requirements of the exclusion (living abroad for a full calendar year and having a tax home in a foreign country). Therefore, the correct answer is B. It is important to note that any income earned over the excluded amount will still be subject to U.S. income tax.

Question 17

Bart, a single taxpayer, has recently retired. This year, he received $24,000 in pension payments and $5,000 of Social Security payments. What amount must Bart include in his gross income for the Social Security payments?

Accepted Answer

The answer of Bart, a single taxpayer, has recently retired....

Question 18

Frank received the following benefits from his employer this year. What amount must Frank include in his gross income?

Accepted Answer

The answer of Frank received the following benefits from his...

Question 19

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of Social Security payments. What amount must Bernie include in his gross income?

Accepted Answer

Both pension payments and Social Security payments are taxable income, so Bernie must include both amounts in his gross income. Thus, Bernie must include $250,000 + $10,000 = $260,000 in his gross income.

Question 20

This year, Barney and Betty sold their home (sales price $750,000; cost $200,000). All closing costs were paid by the buyer. Barney and Betty owned and lived in their home for 18 months. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

Accepted Answer

The answer of This year, Barney and Betty sold their...

Quiz 5: Gross Income and Exclusions

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car. If the federal interest rate was 4 percent, which of the following is correct?

Irene's husband passed away this year. After his death, Irene received $250,000 of proceeds from life insurance on her husband, and she inherited her husband's stock portfolio, worth $750,000. What amount must Irene include in her gross income?

Ben received the following benefits from his employer this year. What amount must Ben include in his gross income?

Joyce's employer loaned her $50,000 this year (interest-free) to buy a new car. If the federal interest rate was 3 percent, which of the following is correct?

This year, Fred and Wilma, married filing jointly, sold their home (sales price $750,000; cost $200,000) . All closing costs were paid by the buyer. Fred and Wilma owned and lived in their home for 20 years. How much of the gain is included in gross income?