Question 1

Jacob and Emily were co-owners of a personal residence.As part of their divorce agreement,Emily paid Jacob cash for his interest in the personal residence.This cash payment results in a taxable gain to Jacob if he receives more cash than his share of the cost of the residence.

Accepted Answer

The answer of Jacob and Emily were co-owners of a...

Question 2

The earned income credit is available only if the taxpayer has at least one qualifying child in the household.

Accepted Answer

The earned income credit is available both for taxpayers with qualifying children and for taxpayers without qualifying children. However, the credit amount is higher for taxpayers with qualifying children.

Question 3

Ashley received a scholarship to be used as follows: tuition $6,000;room and board $9,000;and books and laboratory supplies $2,000.Ashley is required to include only $9,000 in her gross income.

Accepted Answer

The scholarship stated that $9,000 is for room and board which means that it is being considered as a qualified education expense and can therefore be excluded from gross income. The remaining $8,000 (tuition and books/lab supplies) may be taxable if they exceed the total amount of qualified education expenses.

Question 4

An individual generally may claim a credit for adoption expenses in the year in which the expenses are paid.

Accepted Answer

The answer of An individual generally may claim a credit...

Question 5

A phaseout of certain itemized deductions applies for all taxpayers who choose to itemize their deductions.

Accepted Answer

The answer of A phaseout of certain itemized deductions applies...

Question 6

George and Erin are divorced,and George is required to pay Erin $20,000 of alimony each year.George earns $75,000 a year.Erin is required to include the alimony payments in gross income although George earned the income.

Accepted Answer

According to the tax laws, alimony payments must be included in the gross income of the recipient (Erin), even though they were earned by the payer (George). This means Erin will have to pay taxes on the $20,000 of alimony each year.

Question 7

Agnes receives a $5,000 scholarship which covers her tuition at Parochial High School.She may not exclude the $5,000 because the exclusion applies only to scholarships to attend college.

Accepted Answer

The statement is incorrect. The exclusion for scholarships applies to qualified tuition and related expenses for elementary, secondary, and post-secondary education. Therefore, Agnes may be able to exclude the $5,000 from her taxable income if it was used towards qualified education expenses at Parochial High School.

Question 8

In December 2015,Emily,a cash basis taxpayer,received a $2,500 cash scholarship for the Spring semester of 2016.However,she did not use the funds to pay the tuition until January 2016.Emily can exclude the $2,500 from her gross income in 2015.

Accepted Answer

The answer of In December 2015,Emily,a cash basis taxpayer,received a...

Question 9

After the divorce,Jeff was required to pay $18,000 per year to his former spouse,Darlene,who had custody of their child.Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21.During the year,Jeff paid the $18,000 required under the divorce agreement.Darlene must include the $12,000 in gross income.

Accepted Answer

Jeff paid the full $18,000 required under the divorce agreement for that year, so Darlene must include that amount in her gross income. However, if the child were to die or reach age 21, Jeff's payments would be reduced to $12,000 per year, and Darlene would still be required to include that amount in her gross income.

Question 10

In 2015,Theresa was in an automobile accident and suffered physical injuries.The accident was caused by Ramon's negligence.In 2016,Theresa collected from his insurance company.She received $15,000 for loss of income,$10,000 for pain and suffering,$50,000 for punitive damages,and $6,000 for medical expenses which she had deducted on her 2015 tax return (the amount in excess of 10% of adjusted gross income).As a result of the above,Theresa's 2016 gross income is increased by $56,000.

Accepted Answer

Theresa received a total of $81,000 from Ramon's insurance company in 2016, which increases her gross income by that amount.

Question 11

John told his nephew,Steve,"if you maintain my house when I cannot,I will leave the house to you when I die." Steve maintained the house and when John died Steve inherited the house.The value of the residence can be excluded from Steve's gross income as an inheritance.

Accepted Answer

The answer of John told his nephew,Steve,"if you maintain my...

Question 12

Brooke works part-time as a waitress in a restaurant.For groups of 7 or more customers,the customer is charged 15% of the bill for Brooke's services.For parties of less than 7,the tips are voluntary.Brooke received $11,000 from the groups of 7 or more and $7,000 in voluntary tips from all other customers.Using the customary 15% rate,her voluntary tips would have been only $6,000.Brooke must include $18,000 ($11,000 + $7,000)in gross income.

Accepted Answer

This statement is true based on the given information. Brooke received $11,000 from groups of 7 or more customers, which was a mandatory 15% charge. She also received $7,000 in voluntary tips from all other customers. However, if the customary 15% rate had been applied to these voluntary tips, she would have only received $6,000. Therefore, if we add these two amounts, Brooke must include $18,000 in gross income.

Question 13

Betty received a graduate teaching assistantship that was awarded on the basis of academic achievement.The payments must be included in her gross income.

Accepted Answer

Graduate teaching assistantships are generally considered taxable income and must be included in the recipient's gross income.

Question 14

If a scholarship does not satisfy the requirements for a gift,the scholarship must be included in gross income.

Accepted Answer

Scholarships that meet certain requirements (such as being used for qualified education expenses) are generally tax-free and do not need to be included in gross income. Only scholarships that do not meet these requirements would need to be included in gross income.

Question 15

Ted earned $150,000 during the current year.He paid Alice,his former wife,$75,000 in alimony.Under these facts,the tax is paid by the person who benefits from the income rather than the person who earned the income.

Accepted Answer

This statement is true as per current tax laws in the United States. The person who benefits from the income (Ted, in this case) is responsible for paying taxes on it, regardless of who earned the income.

Question 16

A taxpayer's earned income credit is dependent on the number of his or her qualifying children.

Accepted Answer

The earned income credit is calculated based on a variety of factors including income, filing status, and the number of qualifying children. The more qualifying children a taxpayer has, the higher their earned income credit will be.

Question 17

Workers' compensation benefits are included in gross income if the employer also pays the employee while the employee is recovering from his or her injury.

Accepted Answer

Workers' compensation benefits are not included in gross income, regardless of whether the employer continues to pay the employee while they are recovering from their injury. These benefits are specifically excluded from gross income under the U.S. tax code.

Question 18

Paula transfers stock to her former spouse,Fred.The transfer is pursuant to a divorce agreement.Paula's cost of the stock was $75,000 and its fair market value on the date of the transfer is $95,000.Fred later sells the stock for $100,000.Fred's recognized gain from the sale of the stock is $5,000.

Accepted Answer

Since the transfer is pursuant to a divorce agreement, it qualifies as a transfer incident to divorce which is a nontaxable transaction. Fred's cost basis in the stock would be the same as Paula's (i.e. $75,000) and his recognized gain from selling the stock for $100,000 would be $25,000 ($100,000 - $75,000).

Question 19

The child tax credit is based on the number of the taxpayer's qualifying children under age 17.

Accepted Answer

The child tax credit is based on the number of qualifying children under age 17 that the taxpayer has, so this statement is true.

Question 20

Gambling losses may be deducted to the extent of the taxpayer's gambling winnings.Such losses are subject to the 2% floor for miscellaneous itemized deductions.

Accepted Answer

The answer of Gambling losses may be deducted to the...

Quiz 10: Individuals: Income, deductions, and Credits