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Exam 5: Gross Income and Exclusions

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Question 1

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Helen is a U.S. citizen and CPA, who moved to London, England three years ago to work for a British company. This year, she spent the entire year in London and earned a salary of $110,000. How much of her salary will she be allowed to exclude from gross income in the U.S.?

A) $105,500.
B) $108,000.
C) $102,100.
D) $82,000.
E) All of her salary is included in gross income.

F) A) and D)
G) A) and C)

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Question 2

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This year Larry received the first payment from an annuity that promises to pay him $3,000 per month for the rest of his life. The IRS tables indicate that given Larry's age, he should expect to receive 310 monthly payments. The cost of the annuity to Larry was $620,000. How much of the first $3,000 payment should Larry include in gross income?

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$3,000 − [...

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Question 3

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

When a carpenter provides $100 of services in exchange for $100 of groceries, the carpenter has realized $100 of 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$250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.

For tax purposes, unearned income means income that has not yet been realized.

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Caroline is retired and receives income from a number of sources. The interest payments are from bonds thatCaroline purchased over past years and a disability insurance policy that Caroline purchased. CalculateCaroline's gross income.

Robert will be working overseas on a permanent assignment for an international company beginning on March 1 of this year (306 days this year). His salary is $11,000 per month while Robert isoverseas, but only $9,200 per month otherwise. What is the minimum amount of Robert's salary that he must include in gross income this year? (Round your final answer to the nearest whole dollar amount & assume that there are 365 days in this year).

Emily is a cash basis taxpayer, and she was an especially productive salesperson last year. In December of last year her supervisor told Emily she had earned a $5,000 bonus. However, Emily received the bonus check after year end. Identify the principle that will determine when Emily is taxed on the bonus:

Nate is a partner in a partnership that received $5,000 of interest income this year. Nate's share of the interest is $1,000, and he should report this income on his individual return as:

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?

Realized income is included in gross income unless a tax provision specifies that it canbe deferred or excluded.

Worker's compensation benefits are excluded from gross income.

The all-inclusive definition of income means that gross income is defined very broadly.

Charles and Camilla are getting divorced. Under the terms of the decree Charles will payCamilla $50,000 in cash in each of the next five years (or until Camilla's death orremarriage) . In addition, Charles will transfer a castle worth $2,000,000 to Camilla and pay $12,000 per year to support their son, Clyde, until he turns 19 years old. Whatamount (if any) is included in Camilla's gross income this year?

J.Z. (single taxpayer) is retired and received $10,000 of Social Security benefits this year. How much of the $10,000 Social Security benefits is taxable if his only other income was $28,000 of pension income?

Brad was disabled for part of the year and he received $11,500 of benefits from a disability insurance policy purchased by Brad's employer. Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

In April of this year Victoria received a $1,400 refund of state income taxes that she paid last year.Last year Victoria claimed itemized deductions of $8,890. Victoria's itemized deductions included state income taxes paid of $3,750. How much of the refund, if any, must Victoria include in gross income if the standard deduction last year was $6,300?