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Exam 2: Gross Income and Exclusions

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Question 61

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Tim receives a $25,000 gift from his parents for a down payment on a house. They know he can not buy a house without their help. They write "gift" in the memo line of the check. How much of the gift is taxable to Tim?

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None of the gift is taxable. G...

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Question 62

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An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9 percent per year and a municipal bond which pays an interest rate of 7.9 percent per year. The investor is in the 15 percent tax bracket. Which bond will give the investor a higher after-tax interest rate and for which reason?

A) The ABC bond because it pays a 9 percent interest rate, while the municipal bond only pays 7.9 percent .
B) The ABC bond because it pays an equivalent after-tax rate of 10.6 percent, while the municipal bond pays out an equivalent after-tax rate of 9.3 percent.
C) The municipal bond because it pays an equivalent after-tax rate of 9.3 percent, while the ABC bond pays out a 9 percent interest rate.
D) The municipal bond because it pays an equivalent after-tax rate of 7.9 percent, while the ABC bond pays out an equivalent after-tax rate of 7.65 percent.
E) None of the above is correct.

F) All of the above
G) A) and C)

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Question 63

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Andy landscaped his friend's house in return for a couch set and an HD television worth $8,000. How much income must Andy report on his tax return for his services?

In June of the current year, a wealthy aunt gave Janie a stock portfolio worth $150,000. During the year, she collects $4,000 in dividends. How much of these amounts, if any, should Janie include in gross income for the current year? Why?

In regards to Social Security benefits:

Ordinarily life insurance proceeds are excluded from gross income. Why would they be taxable if the policy had been transferred for valuable consideration, prior to the death of the insured?

Robert works for American Motors. American Motors pays a $1,200 premium on Robert's health insurance in 2015. Robert has an operation on his big toe in 2015 that cost $7,200. The insurance company paid for $6,800 of it. Which one of the following is true for 2015?

Laura and Leon were granted a divorce in 2006. In accordance with the decree, Leon made the following payments to Laura in 2015: How much should Laura include in her 2015 taxable income as alimony?

In some cases, Social Security benefits may be partially taxable.

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

Noncash items received as income must be included in income at their fair market value.

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

Which of the following amounts must be included in the gross income of the recipient?

Jim, a single individual, was unemployed for a few months during the current year. During the year, he received $3,600 in unemployment compensation payments. How much of his unemployment compensation payments must be included in gross income?

Which of the following is not taxable income?

Richard and Alice are divorced and under the terms of their written divorce agreement signed on December 30, 2008, Richard was required to pay Alice $1,500 per month of which $600 was designated as child support. He made 12 such payments in 2015. Additionally, Richard voluntarily paid Alice $1,200 per month for 12 months of 2015, no portion of which was designated as child support. Assuming that Alice has no other income, her tax return for 2015 should show gross income of:

All of the following amounts must be included in gross income, except:

A "no-additional-cost" service includes only those services in the major line of business in which the employee is employed.

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?

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