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Exam 5: Gross Income and Exclusions

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Question 61

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Excluded income will never be subject to the federal income tax.

A) True
B) False

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Question 62

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Retired taxpayers over 59½ years of age at the end of the year must receive minimum distributions from defined contribution plans or they are subject to a penalty.

A) True
B) False

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Question 63

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Mr.and Mrs.Smith purchased 100 shares of stock for $45 per share on June 30,2011.On March 30,2018,the Smith family decides to sell these shares for $30 generating a loss of $15 per share.On April 15,2018,the Smith family realized they made a mistake and repurchased 100 shares for $35 per share.Can the Smith family deduct a long-term or short-term capital loss from the sale on March 30,2018? If not,will the Smiths ever receive a tax benefit for their loss?

Generally,long-term capital gains are taxed at:

Hazel received 20 NQOs (each option gives her the right to purchase 10 shares of stock for $7 per share)at the time she started working when the stock price was $14 per share.Now that the share price is $20 per share,she exercises all of her options.How much income will Hazel recognize on the exercise date and how much tax will she pay assuming her marginal tax rate is 24 percent?

To provide relief from double taxation,Congress allows a foreign-unearned income exclusion for interest and dividends earned in foreign countries.

Unemployment benefits are excluded from 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%,which of the following is correct?

Henry works part-time on auto repairs and restoration projects.This year Henry was paid $5,400 for repairs he made to his neighbor's auto.Henry's neighbor promised to pay Henry another $2,200 in cash next year.Henry's brother borrowed $4,100 in cash in December of this year and gave him a negotiable promissory note for $4,300 due in three months with interest.Henry sold the note in January for $3,500.Finally,Henry restored a car for the football coach.The coach paid him with a pass to next year's football games.The pass is worth $750.Compute Henry's gross income assuming that he uses the cash basis of accounting.

Unrecaptured §1250 gain is taxed at the 28 percent preferential capital gains rate.

Graham has accepted an offer to do graduate work in the chemistry department at State University.The chemistry department offered Graham a $5,000 tuition reduction and $3,500 toward the cost of room and meals.Under the terms of the scholarship Graham must work in the chemistry labs during the summer as a research assistant.What amount must Graham include in his gross income?

Caroline is retired and receives income from a number of sources.The interest payments are from bonds that Caroline purchased over past years and a disability insurance policy that Caroline purchased after her retirement.Calculate Caroline's gross income.   $\begin{array}{l}\begin{array}{lll}\text { Distributions from qualified pension plan} \\\text { Interest on bonds issued by City of Austin, Texas} \\\text { Social Security benefits} \\\text { Interest on U.S. Treasury Bills} \\\text { Interest on bonds issued by Ford Motor Company} \\\text { Interest on bonds issued by City of Quebec, Canada} \\\text { Disability insurance benefits} \\\end{array}\begin{array}{lll}\$5,400 \\2,500 \\8,200 \\2,300 \\1,900 \\2,750 \\9,500\end{array}\end{array}$

The tax law defines alimony to include transfers of property (but not cash)between former spouses.

Frank received the following benefits from his employer this year.What amount must Frank include in his gross income?   $\begin{array} { l r} \text { Benefits Received}&\text { Amount}\\\text { Salary } &54,450\\\text { Health insurarice }& 2,900\\\text { Group ternl life insurarice } ( \$ 50,000 ) & 1800\end{array}$

Cyrus is a cash method taxpayer who reports on a calendar-year.Last year Cyrus received salary of $88,000 and at year-end his employer announced that Cyrus would receive an additional year-end bonus of $10,000 in cash and a new TV worth $2,000.Cyrus didn't receive his bonus check until January of this year and the TV didn't arrive until March of this year.Determine the amount Cyrus should include in his gross income for last year.

Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years.Charles paid $180,000 for the annuity.How much of the first $20,000 payment should Charles include in gross income?

Ophra is a cash basis taxpayer who is employed in the publishing industry.This year her employer informed her that because of her outstanding performance she is entitled to a free world cruise.Ophra asked her employer to issue the cruise tickets to her parents,and he complied with this request.Identify the principle that will determine whether Ophra or her parents are taxed on the value of the cruise tickets:

The capital gains (losses)netting process for taxpayers without 25 or 28 percent capital gains requires them to (1)net short-term and long-term gains,(2)net short-term and long-term losses,and (3)net the outcome to yield a final gain or loss to place on the tax return.

Wilma has a $25,000 certificate of deposit (CD) at the local bank.The interest on this certificate,$1,000,was credited to her account this year but she must pay an early withdrawal penalty if she cashes in the CD before next year.Which of the following is a true statement?

Losses associated with personal-use assets,sales to related parties,and wash sales are not currently deductible.