Question 1

Workers at Saltmine, Inc., are required to take their lunch in the company cafeteria at the bottom of the mine for the employer's convenience.The per diem reimbursement they receive in their paycheck for the cost of meals is excluded from the worker's income.

Accepted Answer

The per diem reimbursement for meals is not excluded from the worker's income if it is provided as part of a regular meal plan or in a situation where the employer is trying to avoid paying a higher wage. In this scenario, the requirement to eat in the company cafeteria and the fact that the cafeteria is located in the mine suggests that it is for the employer's convenience and may fall under the category of a regular meal plan. Therefore, the per diem reimbursement would be included in the worker's income.

Question 2

A taxpayer buys a $2 raffle ticket at the neighborhood school carnival.He wins the third prize of $20.The income is excluded from gross income since it is less than $25.

Accepted Answer

All gambling winnings, regardless of the amount, are considered taxable income and must be reported to the IRS.

Question 3

Farmers are required to include in gross income fair market value of materials (e.g., seed corn) received from the government.

Accepted Answer

According to IRS guidelines, farmers are required to include the fair market value of materials received from the government as part of their gross income.

Question 4

Assuming the existence of a written reciprocal agreement, employees of UFO Airlines who fly to Paris on otherwise empty seats on board another company's flight have no taxable income for the value of the transportation.

Accepted Answer

If there is a written reciprocal agreement between UFO Airlines and the other company, then the value of transportation provided to employees on empty seats is not considered taxable income.

Question 5

Any dividend declared, with the option of receiving cash or additional common stock, qualifies for the stock dividend exclusion if stock instead of cash is selected.

Accepted Answer

The stock dividend exclusion typically refers to the tax treatment of dividends where stock dividends are not taxed as income unless the shareholder has the option to receive the dividend in cash or other property. The choice between receiving cash or additional stock does not automatically qualify the dividend for exclusion; tax treatment depends on specific tax laws and regulations.

Question 6

Conceptually, reimbursement for employee business travel is included in gross income but there normally is an offsetting deduction for A.GI.so the effect is usually a wash.

Accepted Answer

Employee business travel reimbursement is included in gross income, but there is typically an offsetting deduction for above-the-line (AGI) expenses, so the net effect is usually neutral.

Question 7

A mother and her 19-year-old son live together in a state that declares persons to be adults at age 18.She receives $120 a month for child support and $80 for alimony.The entire $200 per month is included in gross income.

Accepted Answer

Child support payments are not taxable and are not included in gross income, but alimony payments are taxable and must be included in gross income. Therefore, only the $80 for alimony is included in gross income, not the entire $200.

Question 8

If an annuitant dies before recovering the entire investment in the annuity contract, the amount of the unrecovered investment is allowed as a deduction on the taxpayer's final tax return.

Accepted Answer

This is true. The amount of the unrecovered investment is allowed as a deduction on the taxpayer's final tax return in the year of the annuitant's death.

Question 9

The board of directors of Q Corporation votes to award the president of the company $5,000 in recognition of its appreciation for the president's hard work in securing a government contract.The president will pay no income tax on this bonus (award).

Accepted Answer

Unless the $5,000 bonus meets specific IRS guidelines for exclusion, it is considered taxable income and subject to income tax.

Question 10

The value of leasehold improvements made by the lessee is nontaxable to the lessor at the time made and at the time of lease termination unless they were made in lieu of rent.

Accepted Answer

Leasehold improvements made by the lessee are not considered taxable income to the lessor unless they are made in lieu of rent. This means that the lessee cannot deduct the cost of the improvements as a business expense and the lessor does not have to recognize the value of the improvements as rental income.

Question 11

For child and dependent care assistance provided through an employer plan, an employer is allowed a deduction, and an employee is allowed an exclusion for gross income.The employee's exclusion is subject to an annual limit.

Accepted Answer

This is true. Employers are allowed a deduction for providing child and dependent care assistance through their plans, and employees are allowed to exclude the benefits from their gross income, up to a certain limit each year.

Question 12

H voluntarily pays W $200 a month for three months ($600) prior to their divorce and for five months after their divorce ($1,000).The divorce agreement requires that such payments be made until W's remarriage or death.They have no children.The entire $1,600 is included in the gross income of W.

Accepted Answer

The answer of H voluntarily pays W $200 a month...

Question 13

Distributions of cash and other assets to shareholders by U.S.corporations in excess of their current and accumulated earnings and profits qualify as dividends, provided the shareholder's basis in the stock has been reduced to zero.

Accepted Answer

Distributions in excess of a corporation's current and accumulated earnings and profits are generally not treated as dividends. Instead, they are treated as a return of capital to the extent of the shareholder's basis in the stock and then as capital gain if the distribution exceeds the shareholder's basis.

Question 14

The current tax law requires that the portion of social security tax paid by the employer be included in gross income by the employee, because it represents a benefit of value to be received in the future.

Accepted Answer

The portion of Social Security tax paid by the employer is not included in the employee's gross income. This employer contribution is considered a payroll tax expense for the employer and does not count as taxable income for the employee.

Question 15

T had $600 in state income tax withheld in 2011 and received a refund of $258 in 2012.T is single and always files Form 1040A.The refund is not included in gross income in 2012.

Accepted Answer

The refund of $258 is not included in gross income in 2012.

Question 16

When a mutual fund distributes dividends, the dividends are deductible by the fund and the undistributed income is taxable to the fund.

Accepted Answer

When a mutual fund distributes dividends, those dividends are deductible by the fund and the undistributed income is taxable to the fund. This is because mutual funds are pass-through entities, meaning the income earned by the fund passes through to the investors and is taxed at their individual tax rates.

Question 17

In the calculation of gross income, income that is nontaxable in total is generally not reported on the tax return, while income that is partially taxable and partially nontaxable is generally reported on the return.

Accepted Answer

This is because the calculation of gross income includes only taxable income. Nontaxable income, such as certain types of municipal bond interest, is excluded from gross income. However, if income is partially taxable and partially nontaxable, the taxable portion must be reported on the tax return.

Question 18

Insurance proceeds received to cover lost profits or overhead expenses in the event of fire damage to a grocery are included in gross income.

Accepted Answer

Insurance proceeds received to cover lost profits or overhead expenses are considered income and therefore must be included in gross income for tax purposes.

Question 19

All interest from state and municipal bonds is excluded from gross income.

Accepted Answer

Interest from state and municipal bonds is generally excluded from federal gross income, but certain private activity bonds may be taxable, and some states do tax interest from bonds issued by other states.

Question 20

Proceeds received from an employer-provided group-term life insurance policy are included in gross income of the employee's widow.

Accepted Answer

Proceeds received from a life insurance policy, including an employer-provided group-term life insurance policy, are generally not included in the gross income of the beneficiary and are therefore not taxable.

Quiz 6: Gross Income: Inclusions and Exclusions