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Exam 19: Gross Income: Inclusions

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Question 51

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During 2016,Mark's employer withheld $2,000 from his wages for state income tax.Mark claimed the $2,000 as an itemized deduction on his 2016 federal income tax return.His total itemized deductions for 2016 were $9,000.Mark's taxable income for 2016 was a negative $20,000 due to substantial business losses.Mark received the $2,000 as a refund from the state during 2017.What amount must Mark include in income in 2017?

A) $0
B) $1,000
C) $2,000
D) $6,000

E) B) and D)
F) A) and D)

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Question 52

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Gabe Corporation,an accrual-basis taxpayer that uses the calendar year as its tax year,sells CPE (continuing professional education)courses under contracts ranging from three months to two years.Assume that Gabe Corporation sold three contracts on July 1,2017; one for six months costing $300; one for one year costing $500; and one for two years costing $800. Required: What is the minimum amount of income that must be recognized in 2017 and 2018?

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Question 53

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Marisa and Kurt divorced in 2015.Under the terms of the divorce agreement,Marisa was to pay Kurt $110,000 in 2015 and $60,000 each year following until Kurt's death or remarriage.What must Kurt report on his tax return for 2017 regarding these transactions?

Gross income may be realized when a taxpayer receives economic benefit even if no cash is received.

Unemployment compensation is exempt from federal income tax.

Under the cash method of accounting,income is reported in the year the taxpayer actually or constructively receives the income.

Ron and Eve are a married couple who plan to file separate tax returns.How will they determine how to split their income for tax reporting purposes?

The portion of a taxpayer's wages that are garnished by court order and forwarded to pay a delinquent bank loan are not taxable income to the taxpayer.

Tarik,a single taxpayer,has AGI of $55,000 which includes $1,000 of qualified dividends.Tarik has $7,000 of itemized deductions.What is his 2017 federal income tax?

In December of this year,Jake and Stockard,a married couple,redeemed qualified Series EE U.S.Savings Bonds.The proceeds were used to help pay for their daughter's college tuition.Jake and Stockard received proceeds of $8,000 representing principal of $5,000 and interest of $3,000.The qualified higher educational expenses they paid this year totaled $6,000.Their AGI is below the threshold for phase-out of the exclusion.What is the amount of interest income Jake and Stockard can exclude from their income this year?

Adanya's marginal tax rate is 39.6% and she is trying to decide whether to invest in tax-exempt bonds which pay 5% interest or taxable bonds paying 7% interest.The bonds have equivalent risk.Which of the bonds would yield the highest amount of income after taxes?

Examples of income which are constructively received include all of the following except

Payments from an annuity purchased from an insurance company are not taxable until the taxpayer has recovered the purchase price of the annuity.

Lily had the following income and losses during the current year: What is Lily's adjusted gross income?

Which of the following is least likely to result in a constructive dividend?

Julia,age 57,purchases an annuity for $33,600.Julia will receive $400 per month for the rest of her life.The expected return multiple is 20.0.At age 88,the amount that Julia may exclude from income is

Billy,age 10,found an old baseball glove while exploring his new home.His father,Al,took the glove to a dealer in baseball memorabilia who verified that the glove belonged to Babe Ruth.Al sold the glove for $75,000.What tax issues should Al consider?

Thomas and Sally were divorced last year.As a result,Thomas must pay Sally alimony of $100,000 per year starting this year and relinquish the house and car with a combined value of $170,000 and a combined cost basis of $155,000.The house and car are given as a property settlement.As a result of these transactions Thomas has a deduction of

Emma is the sole shareholder in Pacific Corporation and has owned the stock for five years.The basis in her stock is $50,000.Pacific distributes $35,000 to Emma.Accumulated earnings and profits at the beginning of the year equal $25,000 and current earnings and profits equal $5,000. Required: a.What are the tax consequences of this information? b.What are the tax consequences of this information if,instead of distributing $35,000 to Emma,Pacific distributes $100,000 to Emma?

Raoul sells household items on an Internet website.He receives $3,340 cash and a pair of high-power binoculars from this activity during the year.What tax issues should Raoul consider?