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Exam 5: Gross Income and Exclusions

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Question 31

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Aubrey and Justin file married filing separately.This year,Aubrey earned salary of $130,000,and Justin earned salary of $88,000.Aubrey and Justin live in a common law state.How much income earned will Justin report on his tax return for this year?

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$88,000 Under common law syste...

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Question 32

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The assignment of income doctrine requires that to shift taxable income from property to another person,the taxpayer must transfer only the income to the other person.

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B) False

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Question 33

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To calculate a gain or loss on the sale of an asset,the proceeds from the sale are reduced by which of the following?

Which of the following refers to the date stock options are awarded to an employee?

The date on which stock options are no longer subject to forfeiture is called the vesting date.

The standard retirement benefit an employee will receive under a defined benefit plan depends on the number of years of service the employee provides,but does not consider the amount of the employee's compensation near retirement.

This year Zach was injured in an auto accident.As a result he received the following payments. Zach received $18,000 of disability pay.Zach has disability insurance provided by his employer as a nontaxable fringe benefit.Zach's employer paid $4,300 in disability premiums for Zach this year. Zach's hospital bills totaled $4,500 and were paid by his health insurance.Zach has health insurance provided by his employer as a nontaxable fringe benefit.Zach's employer paid $6,250 in health insurance premiums for Zach this year. What amount must Zach include in his gross income?

Which of the following statements about alimony payments is true for divorce agreements executed before 2019?

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.

Distributions from defined benefit plans are taxed as long-term capital gains to beneficiaries.

This year,Fred and Wilma,married filing joint,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?

Worker's compensation benefits are excluded from gross income.

Which of the following best describes distributions from a traditional defined contribution plan?

Pam recently was sickened by eating spoiled peanut butter.She successfully sued the manufacturer for her medical bills ($3,700) ,her emotional distress ($6,000 - she now fears peanut butter) ,and punitive damages ($44,000) .What amount must Pam include in her gross income?

The cash method of accounting requires taxpayers to recognize income only when that income is received as cash.

Blake is a limited partner in Kling-On Partners.This year Kling-On reported that Blake's share of dividend income was $3,700 and his share of municipal interest was $2,750.Early this year Blake found a bundle of $100 bills in the alley outside his apartment.When no one claimed the money,the cash (a total of $2,400)was returned to Blake.Finally,Blake earned salary of $42,000 but almost $6,500 was withheld for income taxes and FICA tax.Compute Blake's realized income and gross income.

Jake sold his car for $2,400 in cash this year.He will realize a taxable gain of $1,000 if he purchased the car for $1,400.

This year Joseph joined the board of directors.Besides his director's fees,Joseph received the following employee benefits: $\begin{array}{l}\begin{array}{lll}\text { Salary } \\\text { Contribution to qualified pension plan } \\\text { Qualified health insurance premiums } \\\text { Stock bonus } \\\text { Annual director }{ }^{\prime} \mathrm{s} \text { fee }\\\text { Group-term life insurance premiums (face }=\$ 40,000 \text { ) } \\\end{array}\begin{array}{lll}\$204,000 \\25,000 \\8,000 \\20,000 \\15,000 \\1,800\end{array}\end{array}$ The stock bonus consisted of 5,000 shares of Bell stock given to Joseph as compensation.At the time of the transfer the stock was listed at $4 per share.What amounts,if any,should Joseph include in gross income this year?

Taxpayers withdrawing funds from an IRA before they turn 70½ are generally subject to a 10 percent penalty on the amount of the withdrawal.