R1 - M2 Gross Income: Part 1

When/how are group term-life insurance benefits taxable?

Group amounts EXCEEDING $50K are taxable. Taxable amount = IRS uniform cost * exceeding amount

How are the following interest income taxed: (1) interest on Federal income tax refund (2) interest on State income tax refund (3) interest on Federal govt obligation (federal tax refund) (4) interest on state govt obligation

(1) taxable (2) taxable (3) taxable (4) depends on if TP took standard/itemized deduction in PY

Generally for annuities, what is the formula for the amount the taxpayer recognizes for the year?

(Annuity Investment Amount/ Number of Recovery Months) * Number of Months received payment in CY = Taxable Interest

In a 2017 divorce settlement, the ex-husband was required by court order to pay his ex-wife $36,000 in alimony. She recieved $25,000 in cash, a painting valued at $10,000, and the use of his beach house, valued at $3,000. What amount of gross income should she report as alimony? A. $25,000 B. $35,000 C. $38,000 D. $36,000

A. $25,000

Merrill and Joe's divorce was finalized in June of 2012. As part of the settlement, Joe received the following: Alimony - $3K/month Child support - $1K/month Lump-sum payment as the property settlement - $125,000 Payments began in July; however Merrill only paid a total of $15,000 for the year. For the current year, what amount must Joe include in income on his Form 1040? A. $9,000 B. $140,000 C. $15,000 D. $134,000

A. $9,000

Sanderson has made deductible contributions to his traditional IRA for many years. Sanderson recently retired at age 60 and will receive a distribution of $150,000. In which way, if any, will the distribution be taxed? A. As ordinary income B. As a capital gain C. It will NOT be taxed D. Subject to a 10% penalty

A. As ordinary income

Which of the following conditions must be present in a divorce agreement executed on or before Dec 31, 2018 for a payment to qualify as deductible alimony? I. Payments must be in cash or its equivalents II. The payments must end at the recipient's death. A. Both I and II. B. II only. C. I only. D. Neither I nor II.

A. Both I and II.

Clark bought Series EE US Savings Bonds after 1989. Redemption proceeds will be used for payment of college tuition for Clark's dependent child. One of the conditions that must be met for tax exemption of accumulated interest on these bonds is that the: A. Purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse) B. Bonds must be bought by the owner of the bonds before the owner reaches the age of 24. C. Bonds must be bought by a parent (or both parents) and put in the name of the dependent child. D. Bonds must be transferred to the college for redemption by the college rather than by the owners of the bonds.

A. Purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse)

Generally for individual1 receiving life insurance proceeds from the death of individual2, how much does individual1 recognize for the year?

Amount Received in CY - Return of Principle (insurance amt/# of years individual1 will receive payment)

A painter and an accountant agree to trade their services. The painter provides services valued at $550 and the accountant provides services with $50. What amount should the accountant report as income or expense? A. $500 income B. $50 income C. $550 income D. $50 expense

C. $550 income

In the CY Jenson had the following items: Salary - $50,000 Inheritance - $25,000 Alimony (divorce agreement finalized in 2015) - $12,000 Child support - $9,000 Capital Loss on investment stock sale - ($6,000) What is Jenson's AGI for the CY? A. $62,000 B. $44,000 C. $59,000 D. $84,000

C. $59,000

Which of the following amounts represents an adjustment to AGI for the current tax year? A. Child support paid to a former spouse pursuant to a divorce agreement executed in 2014 B. Alimony paid to a former spouse pursuant to a divorce agreement executed in 2019 C. Alimony paid to a former spouse pursuant to a divorce agreement executed in 2014 D. Child support paid to a former spouse pursuant to a divorce agreement executed in 2019

C. Alimony paid to a former spouse pursuant to a divorce agreement executed in 2014

Jen reported the following items during the CY: Fair rent value of a condo owned by Jen's employer - $1,400 Cash found in desk purchased for $30 at a flea market - $400 Inheritance - $11,000 The employer allowed Jen to use the condo for free in recognition of outstanding achievement. Based on this info, what is Jensen's gross income for the year? A. $1,800 B. $1,770 C. $12,400 D. $1,400

A. $1,800

Randolph is a single individual who always claims the standard deduction. Randolph received the following in the CY: Wages - $22,000 Unemployment comp - $6,000 Pension Dist (100% taxable) - $4,000 A state refund from previous year - $45 What is Randolph's gross income? A. $22,000 B. $32,000 C. $32,425 D. $28,425

B. $32,000

Flowers, a married TP, purchased an annuity for $64,400 that will pay $700 per month over the life of Flowers and Flowers' spouse. At the time of purchase, the couple's joint life expectancy was 23 years. Flowers received payment beginning April 1, Y1 amounting to $6,300 in the first year of the annuity contract. How much is includable in Flowers' gross income in the first year? A, $6,300 B. $4,200 C. $0 D. $2,100

B. $4,200

John and Mary were divorced in 2017. The divorce decree (executed 6/30/2017) provides that John pay alimony of $10K per year, to be reduced by 20% of on their child's 18th birthday. During the CY, the $10K was paid in the following way: John paid $7K directly to Mary and $3K to Spring College for Mary's tuition. What amount of these payments should be reported as income for Mary's CY income tax return? A. $5,600 B. $8,000 C. $8,600 D. $10,000

B. $8,000

Dale received $1,000 in the CY for jury duty. In exchange for regular compensation from her employer during the period of jury service, Dale was required to remit the entire $1,000 to her employer this year. In Dale's CY income tax return, the $1,000 jury duty fee should be: A. Excluded from Dale's tax return B. Deducted from gross income in arriving at AGI C. Claimed in full as an itemized deduction D. Included in taxable income without a corresponding offset against other income.

B. Deducted from gross income in arriving at AGI

Johnson worked for ABC Co. and earned a salary of $100,000. Johnson also received, as a fringe benefit, group term-life insurance at twice Johnson's salary. Assume the annual IRS-established uniform cost of insurance is $2.76 per $1,000. What amount must Johnson include in gross income? A. $100,000 B. $100,276 C. $100,414 D. $100,552

C. $100,414

During Y9, Ash had the following cash receipts: Wages - $13,000 US T-Bond Interest Income - $350 Workers' comp for job-related injury - $8,500 What is the total amount that must be included in gross income on Ash's Y9 income tax return? A. $21,500 B. $21,850 C. $13,350 D. $13,000

C. $13,350

Easel Co. has elected to reimburse employees for business expenses under a nonaccountable plan. Easel does not require employees to provide proof of expenses and allows employees to keep any amount not spent. Under the plan, Mel, and Easel employee for a full year, gets $400/month for business automobile expenses. At the end of the year Mel informs Easel that the only business expense incurred was for business mileage of 12,000 at a rate of 30 cents per mile, the IRS standard mileage rate at the time. Mel encloses a check for $1,200 to refund the overpayment to Easel. What amount should be reported in Mel's gross income for the year? A. $3,600 B. $1,200 C. $4,800 D. $0

C. $4,800

Mr. and Mrs. Williams decided during the tax year to purchase their first new home. The FMV of the home was $275,000, and a 20% down payment was required to secure a mortgage in the amount of $220,000 at 5% for 30 years. The Williams' decided to utilize $10,000 that was kept in an IRA owned by Mrs.Williams. This amount was withdrawn on June 12 and used to fund the down payment on July 1. These amounts had been previously deducted as an adjustment on her own individual tax return in the year of contribution. The remaining $12,000 for the down payment was drawn from a savings account. How much of the distribution from the IRA is subject to the premature distribution penalty tax, and how much should be included in the Williams' joint tax return in the year of distribution as gross income? Answer format: penalty tax // gross income A. $10,000 // $0 B. $10,000 // $10,00 C. $0 // $0 D. $0 // $10,000

D. $0 // $10,000

a 33yo TP withdrew $30,000 (pretax) from a traditional IRA. The TP has a 33% effective tax rate and a 35% marginal tax rate. What is the total tax liability associated with the withdrawal? A. $10,500 B. $10,000 C. $13,500 D. $13,000

D. $13,500

Under a $150,000 insurance policy on her deceased father's life, May Green is to receive $12,000 per year for 15 years. Of the $12,000 received in the CY, the amount subject to income tax is: A. $12,000 B. $0 C. $1,000 D. $2,000

D. $2,000

An individual received $50K during the year pursuant to a divorce decree executed in 2015. A check for $25K was identified as an annual alimony, checks totaling $10K as annual child support, and a check for $15K as a property settlement. What amount should be included in the individual's AGI? A. $40,000 B. $0 C. $50,000 D. $25,000

D. $25,000

Which payment(s) is (are) included in a recipient's gross income? I. Payment to a graduate assistant for a part-time teaching assignment at a university. Teaching is not a requirement towards obtaining the degree. II. A grant to a Ph.D. candidate for his participation in a university-sponsored research project for the benefit of the university. A. Neither I nor II. B. I only. C. II only. D. Both I and II.

D. Both I and II.

A cash-basis TP should report gross income: A. Only for the year in which income is actually received whether in cash or in property. B. Only for the year in which income is actually received in cash. C. For the year in which income is either actually or constructively received in cash only. D. For the year in which income is either actually or constructively received, whether in cash or property.

D. For the year in which income is either actually or constructively received, whether in cash or property. ** constructive receipt means TP has control/influence over proceeds

Robbe, a cash basis single TP, reported $50,000 of AGI last year and claimed itemized deductions of $5,500, consisting solely of $5,500 of state income taxes paid last year. Robbe's itemized deduction exceeded the standard deduction available to single TPs last year by $1,150. In the CY, Robbe received a $1,500 state tax refund relating to the PY. What is the proper treatment of the state tax refund? A. Amend the PY return and reduce the claimed deductions for that year B. Include none of the refund in income in the CY C. Include $1,500 in income in the CY D. Include $1,150 in income in the CY.

D. Include $1,150 in income in the CY.

For a cash-basis TP, gain or loss on a year-end sale of listed stock arises on the: A. Delivery date of stock certificate B. Date of receipt of cash proceeds C. Settlement date D. Trade date

D. Trade date

How are Taxable Fringe Benefits included in gross income? Examples of Taxable Fringe Benefits?

Ex: an employee's personal use of company car, premiums that cover up to $50K at FMV of fringe benefit NOT SPECIFICALLY EXCLUDED

T/F. If a corporation has a life insurance policy on one of its key executives, life proceeds are reported as taxable income to the corporation at the death of the executive.

False. Life insurance proceeds on the life of an officer when the corporation is the owner and beneficiary are NOT reported as taxable income of the corporation. (Also any expenses related to the premiums would NOT have been tax deductible)

How are awards/prizes taxed? In what circumstances are they NOT taxed?

Normally taxable at FMV Excluded from income if: (1) winner is selected without action on individual's part (2) award is assigned directly to a governmental unit OR charitable organization

How are Social Security benefits treated in regards to gross income?

SS benefits taxed dependent on income: provisional income: AGI + tax exempt int + 50% SS benefit (1) Lower: NO tax, <25K S/32K MFJ (2) Lower-Mid: <50% tax (3) Mid: 50% tax, >25K S/32K MFJ (4) Upper Mid: 50%<taxable %<85% (5) Upper: 85% taxed, >34S/44MFJ

What is a Series EE Bond?

The Series EE Bond is a non-marketable, interest-bearing U.S. government savings bond that is guaranteed to at least double in value over the initial term of the bond, typically 20 years. Most Series EE bonds have a total interest-paying life that extends beyond the original maturity date, up to 30 years from issuance. Series EE bond is also known as the Patriot Bond. (from Investopedia)

How is property received included in gross income?

at FMV