Question 1

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 $91,000. After the loan was discharged, Deb had total assets of $247,000 and her remaining loans totaled $239,000. What amount must Deb include in her gross income?

Accepted Answer

Deb must include $8,000 in her gross income because after the loan forgiveness, her assets ($247,000) exceeded her liabilities ($239,000) by $8,000, making her solvent by that amount.

Question 2

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant. Ethan indicated that he would transfer the prize to the local hospital. How much of the prize should Ethan include in his gross income?

Accepted Answer

Prizes and awards are generally included in gross income. Ethan must include the $25,000 prize in his gross income even if he plans to donate it to a charity. The tax benefit from such a donation would be realized through deductions, not exclusion from income.

Question 3

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 4

Karl works at Moe's grocery. This year Karl was paid $53,000 in salary, but he was allowed to purchase his groceries at 5 percent below Moe's cost. This year Karl spent $6,650 to purchase groceries, costing Moe $7,000. The groceries were worth $10,500. What amount must Karl include in his gross income?

Accepted Answer

Karl's 5% discount on groceries is considered a fringe benefit, which is taxable. Thus, Karl's gross income would be his salary plus the value of his fringe benefit, which is the difference between the cost and the amount Karl paid for the groceries: $7,000 - $6,650 = $350. Therefore, Karl's gross income would be $53,000 + $350 = $53,350.

Question 5

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...

Question 6

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 gross income is his salary ($43,000) plus the amount of the discount he received on his groceries (which is considered a form of compensation). Moe's cost for Karl's groceries was $4,000, but Karl only paid $3,600 due to his discount. Therefore, Karl's discount was worth $400 ($4,000 - $3,600). Karl's gross income is $43,000 + $400 = $43,400. Karl must include the worth of the groceries he purchased ($6,000) minus the cost he paid for them ($3,600) in his gross income, which is $2,400. Therefore, the total amount he must include in his gross income is his salary ($43,000) plus the value of the discounted groceries ($2,400), which equals $45,400. However, he cost Moe an additional $400 ($4,000 cost to Moe minus $3,600 paid by Karl), so he must include this amount in his gross income as well. Therefore, the final amount Karl must include in his gross income is $43,000 + $2,400 + $400 = $43,400. The correct answer choice is D.

Question 7

Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to pay Barney $56,600 per year for five years (or until Barney's death or remarriage)and $14,200 per year until their daughter, Pebbles, turns 19 years old. What amount (if any)is included in Barney's gross income in 2020?

Accepted Answer

Under the tax law effective in 2020, alimony payments are included in the recipient's gross income. The $56,600 is considered alimony, while the $14,200 is child support, which is not included in gross income.

Question 8

Bernie is a former executive who is retired. This year Bernie received $235,000 in pension payments and $12,700 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 in his gross income. Therefore, Bernie's gross income is $235,000 + $12,700 = $247,700. The correct answer choice is C, which matches this amount.

Question 9

Hal Gore won a $1 million prize for special contributions to environmental research. This prize is awarded for public achievement, and Hal directed the awarding organization to transfer $400,000 of the award to the Environmental Protection Agency. How much of the prize should Hal include in his gross income?

Accepted Answer

Hal should include $600,000 in his gross income because he directed $400,000 of the prize to the Environmental Protection Agency. The direction of the prize money does not change the fact that it is taxable income. Hal should include $600,000 in his gross income ($1,000,000 prize minus $400,000 donated to charity). Prizes are generally taxable unless specifically excluded by law, and charitable donations do not directly reduce taxable income.

Question 10

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 income is income that is not actually received, but is attributed to an individual by the IRS for tax purposes. Imputed compensation income refers to non-cash benefits received by an employee, such as interest-free loans, that are considered compensation for tax purposes. In this case, since Joyce's employer loaned her $50,000 interest-free, the IRS considers that to be a form of compensation, and therefore Joyce must recognize $1,500 of imputed compensation income. Imputed compensation income refers to the value of benefits received by an employee that are not included in their salary or wages, such as interest-free loans. In this case, Joyce received an interest-free loan of $50,000 from her employer, which would be considered imputed compensation income. The amount of imputed income would be calculated based on the federal interest rate, which in this case is 3 percent, resulting in $1,500 of imputed compensation income. Therefore, option C is correct.

Question 11

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 12

This year Ed celebrated his 25 ^th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

Accepted Answer

The answer of This year Ed celebrated his 25 ^th...

Question 13

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 14

This year Ed celebrated his 25^th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $321 and a $2,180 cash bonus. What amount must Ed include in his gross income?

Accepted Answer

The $2,180 cash bonus must be included in Ed's gross income as it is considered taxable income. The gold watch, however, can be excluded from Ed's gross income under the de minimis fringe benefit rule, which allows certain small, non-cash gifts to be excluded from an employee's gross income. In this case, the value of the watch ($321) falls under the de minimis threshold and can be excluded from Ed's gross income.

Question 15

Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the racetrack, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?

Accepted Answer

Gambling winnings are included in gross income and must be reported on Rhett's tax return. Therefore, Rhett must include his total winnings of $1,450 ($250 + $1,200) in his gross income. The fact that he also had gambling losses does not change the fact that he must report his winnings.

Question 16

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 17

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 and Social Security payments are included in gross income for tax purposes. Therefore, Bernie must include $250,000 + $10,000 = $260,000 in his gross income. However, the question asks for what amount Bernie must include, not what his gross income is. The only answer option that matches this is choice C, $258,500, which is incorrect. Therefore, the correct answer is C. Both pension payments and Social Security payments are taxable income, so Bernie must include both in his gross income. Therefore, his gross income is $250,000 + $10,000 = $260,000. However, he may be able to reduce his taxable income through deductions and credits.

Question 18

Charles and Camillagot divorced in 2018. Under the terms of the decree Charles pays Camilla $50,000 in cash in each of the next five years (or until Camilla's death or remarriage). In addition, Charles transferred a castle worth $2,000,000 to Camillain 2018 and will pay $12,000 per year to support their son, Clyde, until he turns 19 years old. What amount (if any)is included in Camilla's gross income in 2020?

Accepted Answer

Only the cash payments of $50,000 per year are included in Camilla's gross income. The transfer of the castle was a property settlement and not taxable, and the child support payments are not taxable. Therefore, the answer is choice (C), $50,000. Only the cash payments of $50,000 per year are included in Camilla's gross income. The transfer of the castle and the child support payments are not taxable events for Camilla. Therefore, only the $50,000 she received in cash in 2020 would be included in her gross income.

Question 19

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 20

Hal Gore won a $1.75 million prize for special contributions to environmental research. This prize is awarded for public achievement, and Hal directed the awarding organization to transfer $605,000 of the award to the Environmental Protection Agency. How much of the prize should Hal include in his gross income?

Accepted Answer

Hal should include the entire prize of $1.75 million in his gross income, but he directed $605,000 of the award to the Environmental Protection Agency, which will be considered a charitable contribution and may be deductible as an itemized deduction on his tax return. The remaining $1,145,000 would be included in his gross income.

Quiz 5: Gross Income and Exclusions

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant. Ethan indicated that he would transfer the prize to the local hospital. How much of the prize should Ethan include in his gross income?

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?

Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to pay Barney $56,600 per year for five years (or until Barney's death or remarriage) and $14,200 per year until their daughter, Pebbles, turns 19 years old. What amount (if any) is included in Barney's gross income in 2020?

Bernie is a former executive who is retired. This year Bernie received $235,000 in pension payments and $12,700 of Social Security payments. What amount must Bernie 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?

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?

This year Ed celebrated his 25 ^th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

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?

This year Ed celebrated his 25^th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $321 and a $2,180 cash bonus. What amount must Ed include in his gross income?

Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the racetrack, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?

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?

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?

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

Quiz 5: Gross Income and Exclusions

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant. Ethan indicated that he would transfer the prize to the local hospital. How much of the prize should Ethan include in his gross income?

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?

Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to pay Barney $56,600 per year for five years (or until Barney's death or remarriage) and $14,200 per year until their daughter, Pebbles, turns 19 years old. What amount (if any) is included in Barney's gross income in 2020?

Bernie is a former executive who is retired. This year Bernie received $235,000 in pension payments and $12,700 of Social Security payments. What amount must Bernie 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?

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?

This year Ed celebrated his 25 th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

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?

This year Ed celebrated his 25th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $321 and a $2,180 cash bonus. What amount must Ed include in his gross income?

Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the racetrack, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?

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?

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?

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

This year Ed celebrated his 25 ^th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

This year Ed celebrated his 25^th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $321 and a $2,180 cash bonus. What amount must Ed include in his gross income?