AC371 Exam 1(Chapter 5)
Under the realization principle, what must occur for income to be realized?
- a taxpayer must engage in a transaction with another party - the transaction must result in a measurable change in property rights
Which of the following fringe benefits are excluded from taxation in 2018?
- group term life insurance under $50,000 - dependent care benefits - medical insurance
Under which of the following circumstances might life insurance proceeds be included in gross income?
- when a life insurance policy is cashed out by the insured before death and the proceeds exceed the premiums paid - when a life insurance policy is transferred to another party for valuable consideration
Beginning in 2019, in the case of a divorced couple, __________ payments are excluded from gross income of the recipient and ___________ for the payer.
alimony, nondeductible
Court-ordered cash payments pursuant to a divorce or legal separation which provide financial support to an ex-spouse and do not continue after the death of the ex-spouse are referred to as
alimony
A _____________ is an investment that pays a stream of equal payments over time.
annuity
Income received as a result of services provided by the taxpayer, including business income, is referred to as _______________ income.
earned
Nonrecognition provisions refer to a specific type of income that taxpayers realize but are allowed to permanently _________ from gross income of temporarily __________ until a later period.
exclude, defer
true or false: In general, prizes awarded to taxpayers are excluded from gross income
false
Taxpayers receiving indirect economic benefits, such as bargain purchases or below market loans, are said to have _____________ income which may be taxable.
imputed
Interest in _________ bonds is excluded from federal income taxation.
municipal
Income from ___________ takes different forms, such as dividends, interest, rents, royalties, and annuities.
property
When a taxpayer includes an economic benefit in gross income, he is said to have _____________ the income.
recognized
Constructive Receipt Doctrine
taxpayers realize and recognize income when it is actually received or was available to them
true or false: Income and deductions generated within a partnership or S corporation that are subject to various tax treatments (qualified dividends, capital gains, ect.) retain their character when they flow-through to the owners rather than bing reclassified as ordinary income or loss
true
Single taxpayers meeting certain home ownership and use requirements can permanently exclude up to __________ of the realized gain on the sale of their principal residence.
$250,000
Which of the following represent economic benefits to a taxpayer?
- a computer received in exchange for services rendered - interest income on investments - cash received for completing a job
The highest percentage of social security benefits that may be taxed is __________ , and only for moderate to high income taxpayers.
85%
Which of the following statements is correct concerning a gift?
a gift may be subject to a "gift tax" which is paid by the person giving the gift
The ________________ doctrine states that income has been realized if a taxpayer receives income and there are no restrictions on the taxpayers use of the income.
claim of right
____________ is deemed to occur when the income has been credited to the taxpayer's account or when the income is unconditionally available to the taxpayer, the taxpayer is aware of the availability and there are no restrictions on the income.
constructive receipt
_______ is defined in Sec.61 of the Internal Revenue Code as "all income, from whatever source derived".
gross income
Assignment of Income Doctrine
holds that a taxpayer who earns income from services must recognize the income as theirs
Tax Benefit Rule
if a refund is made for an expenditure deducted in a previous year, then the refund is included in gross income to the extent that a prior deduction produced a tax benefit
Claim of Right Doctrine
income has been realized if a taxpayer receives income and there are no restrictions on the taxpayers use of the income
Which of the following statements is correct regarding the recognition of income?
income may be in the form of cash, property, or services received in a transaction
Form of Receipt Doctrine
indicates that taxpayers realize income whether they receive money, property, or services in a transaction
If a taxpayer cashes out a life insurance policy before death due to a chronic illness, she may exclude from income the amount used to pay for her_____________.
long-term care
Income from property is referred to as _______________ income.
unearned
Return of Capital Doctrine
when receiving a payment for property, taxpayers are allowed to recover the cost of the property tax-free