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Exam 5: Gross Income and Exclusions

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Question 1

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Vincent is a writer and U.S. citizen. After being out of work for the 1ˢᵗ half of the year, Vincent moved permanently to Ireland on July 4. He worked for an Irish magazine and earned $110,000 in salary from July 4ᵗʰ - December 31ˢᵗ. Earlier in April of this year Vincent received a $1,500 refund of the $3,600 in state income taxes his previous employer withheld from his pay last year. Vincent claimed $7,150 in itemized deductions last year (the standard deduction for a single filer was 6,350). Vincent wants to elect to use the foreign-earned income exclusion to the extent he is eligible. Calculate Vincent's gross income for this year. (Round your final answer to the nearest whole dollar amount and assume there are 365 days in the year.)

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$59,277 = $110,000 - $51,523 + $800 $103,900 × 181/365 = $51,523 maximum exclusion. The tax benefit is the lesser of the refund ($1,500) or the excess of the itemized deductions above the standard deduction ($7,150-$6,350 = $800). Hence, Vincent must include $800 of the $1,500 refund in gross income.

Question 2

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Teresa was married on November 1 of this year and on that day received numerous gifts from her extended family. Her grandfather presented Teresa with a check for $15,000; her uncle gave Teresa 1,000 shares of Ford stock worth $10 per share (the uncle purchased the shares for $25 each); and her aunt presented Teresa with $50,000 of corporate bonds (Teresa received $1,500 of semiannual interest from the bonds on December 31 of this year). Finally, Teresa's parents paid off $50,000 of her student loans debt including $2,000 of accrued interest. What amount, if any, must Teresa include in gross income this year?

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$500 (2 months of 6 months int...

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Question 3

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

Qualified fringe benefits received by an employee can be excluded from gross income.

Identify which of the items below help determine which taxpayer must recognize earned income:

This year Henry realized a gain on the sale of an antique car that he inherited from his uncle. The buyer has promised to pay Henry in installment payments over the next few years. Identify the principle that will determine when Henry should be taxed on the gain from the sale:

Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the racetrack, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?

Constructive receipt represents the principle that cash basis taxpayers will be taxed on income when it is made available to them without substantial restrictions.

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 $8,940. 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 $6,350?

Alex is 63 years old and retired. This year Alex won $212,200 in the state lottery. Alex also received $20,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 15 years, for $157,500. Alex received $10,000 in Social Security benefits for the year. Calculate Alex's gross income.

Hillary is a cash-basis calendar-year taxpayer. During the last week of December she received a letter containing a $5,000 check for services rendered. Which of the following is a True statement?

Which of the following is a True statement about the first payment received from a purchased annuity?

Joyce's employer loaned her $50,000 this year (interest-free) to buy a new car. If the federal interest rate was 3%, which of the following is correct?

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?

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

Interest earned on a Federal Treasury bond is excluded from gross income (for federal tax purposes).

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

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

Irene's husband passed away this year. After his death, Irene received $250,000 of proceeds from life insurance on her husband, and she inherited her husband's stock portfolio worth $750,000. What amount must Irene include in her gross income?

Worker's compensation benefits are excluded from gross income.