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Exam 2: Gross Income and Exclusions

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Question 21

True/False

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To promote business activity, the tax rules generally are very liberal in treating business gifts as tax-free income to the recipient.

A) True
B) False

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Question 22

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Which of the following are not excludable as an employee fringe benefit?

A) Employee deductions of $4,200 for dependent childcare expenses
B) Premiums for up to $50,000 of group term life insurance
C) An employee discount that permits the sale of merchandise to employees for just over cost
D) Public transportation costs of $130 per month provided by the employer
E) All of these are excludable as an employee fringe benefit

F) A) and C)
G) A) and E)

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Question 23

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Answer the following questions regarding the taxability of Social Security payments. a. Will a taxpayer with no income other than Social Security have to include the Social Security in taxable income? b. Will a taxpayer with a large amount of municipal bond income, but no taxable income, likely have to pay tax on part of his or her Social Security? c. What is the maximum percentage of Social Security benefits which may be subject to tax on an individual's tax return?

Peter is required by his 2019 divorce agreement to pay alimony of $4,000 a month and child support of $6,000 a month to his ex-wife Stella. What is the tax treatment of these two payments? To Peter? To Stella?

Helga receives a $300,000 life insurance payment when her boyfriend Andy dies. How much of the payment is taxable to Helga?

Which of the following is nontaxable income to the recipient for tax purposes?

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2019 tax year. -Farm income

Which of the following fringe benefits is taxable to the employee receiving the benefit?

Qualified dividends are given special tax treatment. Describe how they are taxed in 2019.

Which of the following gifts or prizes would be considered taxable income to the person receiving the gift?

Amounts received as scholarships for books and tuition may be excluded from the recipient's taxable income.

Kim earned $30,000 from Pfizer before she was laid off. She then collected $7,000 of unemployment benefits. Finally, Kim received a $12,500 scholarship for tuition so she could return to college to earn a microbiology degree. How much does Kim need to report as income on her tax return?

Bonnie receives salary income of $32,000, unemployment compensation of $4,400, and interest income of $1,200 and a gift of $7,000 in cash from her aunt. How much gross income does Bonnie have?

Marie had a good year. She received the following prizes and awards: - an iPad from The Famous Daytime Talk Show with a fair market value of $500 - lottery winnings of $1,000 received in cash - a plaque worth $25 plus $100 of Godiva chocolate in recognition for 100 days on the job without an accident - a $10,000 cash prize from American Idol How much of her prizes and awards should Marie report on her tax return?

Steve worked as a tech supervisor for a computer company. In September of this year, he was laid off. He was paid unemployment compensation for the rest of the year totaling $7,000. Which of the following is true?

Jack is a lawyer and Jeri is a child psychologist. Jack prepares Jeri's estate planning at no charge and Jeri agrees to counsel Jack's daughter six times at no charge in return for the estate planning. The value of the estate planning is $1,000 and the value of the therapy sessions is $1,000. a. How much income does Jack have? Why? b. How much income does Jeri have? Why?

Interest earned on bonds issued by a state government is fully taxable.

Elsie received the following distributions from Virginiana Mutual Fund for the calendar year 2019: $\begin{array} { l r } \text { Ordinary dividends (nonqualifying) } & \$ 250 \\\text { Capital gain distributions } & \$ 170 \\\text { Nontaxable distributions } & \$ 80\end{array}$ Elmer, Elsie's husband, did not own any of the Virginiana Mutual Fund shares, but he did receive $1,600 in interest on a savings account at the Moss National Bank. Elmer and Elsie filed a joint income tax return for 2019. What portion of the distributions from Virginiana Mutual Fund is taxable as ordinary income on their 2019 individual income tax return?

Van is sick and tired of his job. His doctor certifies that his health may be compromised if he continues to work at his current job. He sells his life insurance policy to Life Settlements, Inc. for $50,000 so he can take a break from work. He has paid $10,000 so far for the policy. How much of the $50,000 must Van include in his taxable income?

In which of the following cases may the employee exclude the meals and/or lodging: