CH 5 Income Tax HW

Alfred owned a term life insurance policy at the time he was diagnosed as having a terminal illness. After paying $18,300 in premiums, he sold the policy to a company that is authorized by the state of South Carolina to purchase such policies. The company paid Alfred $125,000. When Alfred died 18 months later, the company collected the face amount of the policy, $150,000. As a result of the sale of the policy, how much is Alfred required to include in his gross income?

$0 If an income item is within the all-inclusive definition of gross income, the item can be excluded only if the taxpayer can locate specific authority for doing so.

Ellie purchases an insurance policy on her life and names her brother, Jason, as the beneficiary. Ellie pays $32,000 in premiums for the policy during her life. When she dies, Jason collects the insurance proceeds of $500,000. As a result, how much gross income does Jason report?

$0 If an income item is within the all-inclusive definition of gross income, the item can be excluded only if the taxpayer can locate specific authority for doing so.

Valentino is a patient in a nursing home for 45 days of 2020. While in the nursing home, he incurs total costs of $13,500. Medicare pays $8,000 of the costs. Valentino receives $15,000 from his long-term care insurance policy, which pays while he is in the facility. Assume that the Federal daily excludible amount for Valentino is $380. Of the $15,000, what amount may Valentino exclude from his gross income?

$380 * 45 days = $17,.100 Actual Cost = $13,500 17,100 - 8,000 = $ 9,100 excluded

For the following items, indicate what amount, if any, is included in Polly's gross income. The company has a storage facility for household goods. Officers are allowed a 20% discount on charges for storing their goods. All other employees are allowed a 10% discount. Polly's discounts for the year totaled $900.

$900

For the following items, indicate what amount, if any, is included in Polly's gross income. All employees are allowed to use the company's fixed charge long-distance telephone services, as long as the privilege is not abused. Although no one has kept track of the actual calls, Polly's use of the telephone had a value (what she would have paid on her personal telephone) of approximately $600.

0

For the following items, indicate what amount, if any, is included in Polly's gross income. The company has a qualified retirement plan. The company pays the cost of employees attending a retirement planning seminar. The employee must be within 10 years of retirement, and the cost of the seminar is $1,500 per attendee.

0

For the following items, indicate what amount, if any, is included in Polly's gross income. The company is in the household moving business. Employees are allowed to ship goods without charge whenever there is excess space on a truck. Polly purchased a dining room suite for her daughter. Company trucks delivered the furniture to the daughter. Normal freight charges would have been $750.

0

For the following items, indicate what amount, if any, is included in Polly's gross income. The company owns a condominium at the beach, which it uses to entertain customers. Employees are allowed to use the facility without charge when the company has no scheduled events. Polly used the facility 10 days during the year. Her use had a rental value of $1,000.

0

Regarding Leigh's settlement, classify the following as either "Included in" or "Excluded from" her gross income. 1) Damage to her automobile that the collector attempted to repossess 2) Physical damage to her arm caused by the collector 3) Loss of income while her arm was healing 4) Punitive damages

1) Excluded from 2) Excluded from 3) Excluded from 4) Included in

Jarrod receives a scholarship of $18,500 from East State University to be used to pursue a bachelor's degree. He spends $12,000 on tuition, $1,500 on books and supplies, $4,000 for room and board, and $1,000 for personal expenses. How much may Jarrod exclude from his gross income?

18,500 - 4,000 - 1,000 = $13,500 Room and Board Personal Expenses both not included

Leland pays premiums of $5,000 for an insurance policy in the face amount of $25,000 upon the life of Caleb and subsequently transfers the policy to Tyler for $7,500. Over the years, Tyler pays subsequent premiums of $1,500 on the policy. Upon Caleb's death, Tyler receives the proceeds of $25,000. As a result, what amount is Tyler required to include in his gross income?

25,000 - 7,500 - 1,500 = $16,000

For the following items, indicate what amount, if any, is included in Polly's gross income. The company owns a parking garage that is used by customers, employees, and the general public. Only the general public is required to pay for parking. The charge to the general public for Polly's parking for the year would have been $3,600 (a $300 monthly rate).

300 - 270 = 30 30 * 12 = $360

Tim is the vice president of western operations for Maroon Oil Company and is stationed in San Francisco. He is required to live in an employer-owned home, which is three blocks from his company office. The company-provided home is equipped with high-speed internet access and several telephone lines. Tim receives telephone calls and e-mails that require immediate attention any time of day or night, as the company's business is spread all over the world. A full-time administrative assistant resides in the house to assist Tim with urgent business matters. Tim often uses the home for entertaining customers, suppliers, and employees. The fair market value of comparable housing is $9,000 per month. Tim is also provided with free parking at his company's office. The value of the parking is $360 per month. The amount associated with the free parking that Tim must include in his gross income per month is $

360 - 270 (amount excludable) = $90

Beth received $10,000 in compensatory damages in a lawsuit she filed against a tanning parlor for severe burns she received from using the parlor's tanning equipment. Beth also received $30,000 in punitive damages in the lawsuit against the tanning parlor.

Excluded from Included in

Joanne received compensatory damages of $75,000 from a cosmetic surgeon who botched her nose job. Joanne also received $300,000 in punitive damages from the cosmetic surgeon who botched her nose job.

Excluded from Included in

Eloise received $150,000 in the settlement of a sex discrimination case against her former employer.

Included In

Orange Corporation, an accrual-basis taxpayer, received $50,000 from a lawsuit it filed against its auditor, who overcharged for services rendered in a previous year.

Included in

Nell received $10,000 for damages to her personal reputation. Nell also received $40,000 in punitive damages.

Included in Included in

Assume that Leigh also collected $25,000 of damages for slander to her personal reputation caused by the bill collector misrepresenting the facts to Leigh's employer and other creditors. Is this $25,000 included in Leigh's gross income?

Yes

Classify each of the following cases as "Included in" or "Excluded from" gross income. a) Jose received $200,000 in the settlement of an age discrimination case against his former employer. b) Suzi received $8,000 for loss of income in a lawsuit she filed for personal injuries resulting from an accident. Suzi also received $2,400 in reimbursed medical expenses. c) Kreme Corporation, an accrual-basis taxpayer, received $185,000 from a lawsuit it filed against its vendor, who overcharged for services rendered two years ago. In addition, Kreme received $25,000 in punitive damages. d) Clarke received $300,000 in compensatory damages in a lawsuit he filed against a medical practice for personal injury he suffered as a result of medical treatments. e) Frances received compensatory damages of $30,000 for emotional distress due to slanderous remarks made by a co-worker. Frances also received $50,000 in punitive damages.

a) Included in b) Excluded from Excluded from c) Included in Included in d) Excluded from e) Included in Included in