Exam 2 ch. 4 & 5
The 2018 Exclusion limit for foreign income is....
$103,900
What is the monthly dollar amount of the commuting and parking limit in qualified transportation?
$260
George is awarded $55,000 in compensatory damages for harm to his reputation and $30,000 in compensatory damages for bodily injury. In addition, George is awarded $275,000 in punitive damages. How much of these awards must George recognize in taxable income? Select one: $85,000 $275,000 $330,000 $360,000
$330,000 (Only compensatory damages for bodily injury are excludable from gross income. Compensatory damages without bodily injury are includible as are punitive damages. Therefore, George must include $330,000 ($275,000 punitive damages + $55,000 compensatory damages for harm to reputation) in his income.)
What is the dollar amount limit on educational assistance programs?
$5,250
For group term insurance up to what amount of death benefit is excluded?
$50,000 (magic number) (if over it is taxable to employee)
George is single and received $28,000 of dividend income during the year. He also received $18,000 of Social Security benefits. What portion of his Social Security benefits are taxable? Select one: $0 $7,050 $9,000 $15,300
$7,050 (The lesser of: 85% of $18,000 = $15,300 or 0.85 [$28,000 + 0.5 ($18,000) - $34,000] = $2,550 plus $4,500 equals $7,050)
Bill lives and works in France during 340 days out of the 365 days during the 2018 calendar year. He meets the physical presence test. The maximum amount of foreign earned income that he can exclude from his gross income is....
$96,784 ((340/365) x $103,900)) ($103,900 is prorated by 340 days)
Which of the following must be included in Pete's income? Short-term capital gains of $10,000 from the sale of stock. Long-term capital gains of $80,000 from the sale of real property. Interest income from Pete's savings account. A gift from Pete's brother of $15,000. Select one: 1 and 2 3 and 4 1, 2, and 3 1, 2, 3, and 4
1, 2, and 3 (Gifts are not included in the income of the recipient. All of the other items must be included in Pete's income.)
Nick and Kim are married and are trying to calculate their gross income for the current year. Which of the following items should they include in gross income? Child support payments in the amount of $15,000 received from Kim's ex-husband for the support of their minor child. $1,200 in dividends received. Unemployment benefits received in the amount of $800. $3,000 that Kim earned selling homemade soaps. Select one: 4 only 1 and 2 2, 3, and 4 All of the above
2, 3, and 4 (Option 1 is not correct because child support is not includible in gross income. All of the other options are included in gross income (dividend income, unemployment compensation benefits, and gross income from self employment).)
Physical presence test
330 days in consecutive 12 months Can begin on any day Exemption prorated by number of days
Attributes of Flex Spending Accounts (FSAs) include....
Employee election to pay for medical/dependent care costs with pre-tax dollars Amounts not spent are forfeited!!! Entire amount available at beginning of year (No recovery by employer if employee terminates employment)
If you are getting a benefit from the work that you are doing and it does not create a substantial cost to the employer you still have to pay taxes. (T/F)
False (No-additional-cost services are tax free) (Think Kallback and college job at sandwich shop)
Which of the following payments would not qualify as a qualified disaster relief payment? Select one: Payments for unlimited funeral expenses incurred as a result of a qualified disaster. Payments for reasonable and necessary expenses to repair a personal residence as a result of a qualified disaster. Payments to promote the general welfare in connection with a qualified disaster and paid by the federal government. Payments made by a person engaged in the furnishing or sale of transportation as a common carrier by reason of personal physical injuries incurred as a result of a qualified disaster.
Payments for unlimited funeral expenses incurred as a result of a qualified disaster. (Only payments for reasonable and necessary funeral expenses incurred as a result of a qualified disaster would qualify as a qualified disaster relief payment and therefore be excluded from gross income.)
Qualified employee discounts are excluded from income if...
Products are no more than the cost of goods. Services are no more than 20%
Characteristics of long-term contracts under the percentage completion method.....
a portion of the expected revenues are recognized at regular intervals based upon the percentage of completion of the work
De minimis fringe benefits....
are small or minimal and do not need to be counted
Plan earnings are tax _________ until you take money out
deferred
Realization occurs when....
income is received, or when a gain on a property transaction becomes fixed.
Grant price
the price when an employee is given a share in a stock optoin
Trish invested $100,000 in an annuity contract. Years later, she annuitized the contract. The insurance company agreed to pay her $1,666.67 per month for 20 year. How much of each payment is taxable? Select one: $0 $466.67 $1,250.00 $1,666,67
$1,250.00 (100,000 / 400,000 = 25% exclusion ratio 1 - 0.25 = 0.75 inclusion x $1,666.67 = $1,250)
Tyler has lived and worked in Florida for 30 years. He was divorced recently and decided he needed a change of scenery. He applied for and was offered a job in California. Tyler had the following expenses related to the move: 1. House hunting expenses - $5,000 2. Moving truck service - $12,000 3. Lodging en route - $600 4. Meals en route - $250 5. New driver's license in California - $35 6. Ticket for speeding en route - $250 Tyler's new employer reimbursed him for $8,000 in moving expenses. Tyler's salary for the year was $100,000. What is Tyler's AGI? Select one: $87,400 $95,400 $100,000 $108,000
$108,000 (None of the house hunting expenses, truck, meals, new driver's license, ticket for speeding, etc. are deductible. Because the employer reimbursed him for $8,000 of the expenses, he must include the $8,000 in income. Thus, his AGI is $108,000. Because Tyler is not active duty military, the reimbursement is included in income. )
Tim and Diane were divorced in the current year (Year 1). Under the divorce agreement, Diane is to receive $100,000 in the current year, $60,000 next year (Year 2) and nothing thereafter. The payments were to cease upon Diane's death or remarriage. How much, if any, should Tim have to claim as alimony recapture in Year 3? Select one: $0 $30,000 $115,000 $122,500
$122,500 (Calculation of Recapture: R3 = R2 + R1 R2 = P2 - (P3 + $15,000) R2 = P2 - [(P2 - R2 + P3)/2] + $15,000 R3 = amount recaptured in Year 3 R2 = amount recaptured in Year 2 R1 = amount recaptured in Year 1 P1, P2, P3 = payments 1, 2, and 3, respectively Solve R2 first: R2 = $60,000 - ($0 + 15,000) = $45,000 R1 $100,000 - [($60,000 - 45,000 + 0)/2) + $15,000 = $77,500 R3 = $45,000 + $77,500 = $122,500 Shortcut:* R3 = [(P1 + P2) - 2 P3] - $37,500 160,000 - 37,500 = $122,500 *May not always work, but may save time on an exam if you can't remember the formula.)
Regis and Kelly, a married couple, have income of $50,000 and Social Security benefits of $20,000. What amount of their Social Security benefits must be included in their taxable income? Select one: $13,600. $14,000. $17,000. $19,600.
$17,000 (Regis and Kelly must include the lesser of: 0.85 ($20,000) = $17,000, or 0.85 ($50,000 + $10,000 - $44,000) = $13,600 plus the lesser of: $6,000, or 0.50 ($50,000 + $10,000 - $32,000) = $14,000. Therefore, Regis and Kelly must include $17,000 of their Social Security benefits in their taxable income.)
Jason bought 50 shares of Exxon Mobil (XOM) for $75 in 2010. He sold his shares for $100 per share in 2019. With taxable income of $90,000, how much will Jason owe in capital gains' tax on this transaction? (round to the nearest dollar) Select one: $188 $250 $1,250 $5,000
$188 ($100 x 50 = $5,000 $75 x 50 = $3,750 $5,000 - $3,750 = $1,250 $1,250 x .15 = $187.50)
Cinnamon, age 21, is a full time student for a degree at State University. During the summer, she earned $5,600 from a part-time job. Her only other income consisted of $1,050 interest on a savings account. What is Cinnamon's taxable income for the current year? Select one: $0 $700 $1,050 $6,500
$700 (The standard deduction for Cinnamon is the greater of $1,050 or $350 plus earned income but not to exceed the normal standard deduction. Therefore, $350 + $5,600 = $5,950 so it is not limited in 2018. The total income is $5,600 + $1,050 = $6,650. Taxable income is $6,650 = $5,950 (2018 standard deduction) = $700)
Freddie and Karen are married and had the following income and expenses for this year. Freddie's salary of $60,000. Freddie's employer provides him with a group term life insurance policy for 2 times his salary. The policy premium paid by the employer is $150 per year. The Uniform Premium Table amount is $0.10. Karen had salary of $10,000 and unemployment compensation of $9,000. Karen won $1,500 on a game show. What is Freddie and Karen's joint gross income? Select one: $71,584. $78,184 $78,250 $80,584
$80,584 (All items will be included in income. The premium on the insurance policy will be included as follows: ((($60,000 x 2) - $50,000) / 1,000) x 0.10 x 12 = $84 inclusion. The amount the employer actually pays is irrelevant. $60,000 + $84 + $10,000 + $9,000 + $1,500 = $80,584)
Brian had the following items of income this year. Salary - $22,000 Child support received - $6,000 Alimony received - $10,000 (2006 divorce decree) Personal injury award from an auto accident. He lost the use of his left hand and was awarded compensatory damages of $200,000. He also received $50,000 in punitive damages. Calculate Brian's gross income for the current year. Select one: $32,000 $38,000 $82,000 $288,000
$82,000 (Salary of $22,000 + Alimony of $10,000 + $50,000 in punitive damages = $82,000. The child support is not taxable. The personal injury award is for bodily injuries and therefore is not taxable; however, the punitive damages are.)
Which of the following can be excluded from Ellen's gross income? The value of a diamond ring tha t Ellen received as a gift from David. The value of a mansion that Ellen inherited from her parents. The value of concert tickets that Ellen won in a radio contest. The value of a scholarship for room and board that Ellen received to her state university. Select one: 1 only 1 and 2 1, 2, and 3 2, 3, and 4
1 and 2 (The concert tickets that Ellen won in a radio contest are a prize/award and therefore the value is included in her gross income. The value of the scholarship is also included in Ellen's gross income because the scholarship was for room and board, which is not considered to be qualified tuition and related expenses.)
Which of the following statements is correct regarding the taxation of fringe benefits? The value of the fringe benefit is included in the employee's gross income unless the Code specifically excludes it from taxation. The value of the fringe benefit is excluded from the employee's gross income unless the Code specifies otherwise. The value of the fringe benefit is taxable if the benefit is only provided to employees owning more than 5% of the company and the fringe benefit has a nondiscrimination requirement. The value of the fringe benefit is always taxable if someone other than the employee (e.g., the employee's spouse) benefits from the fringe benefit provided by the employer. Select one: 1 and 2 1 and 3 2 and 4 3 and 4
1 and 3 (Someone who owns more than 5% of a company is a highly compensated employee and/or a key employee. If non-discrimination requirements apply, fringe benefits that are only provided to this group will be taxable, even if they are otherwise excluded from taxation.)
Which of the following must be included in Pete's income? Short-term capital gains of $10,000 from the sale of stock. Long-term capital gains of $80,000 from the sale of real property. Interest income from Pete's savings account. A gift from Pete's brother of $15,000. Select one: 1 and 2 3 and 4 1, 2, and 3 1, 2, 3, and 4
1, 2, and 3 (Gifts are not included in the income of the recipient. All of the other items must be included in Pete's income.)
Susan purchased 100 shares of Walmart (WMT) stock for $83 per share in 2018. During 2018, Susan received $290 in dividends. Walmart is presently valued at $103 per share. Which of the following is true? Susan's dividends would be taxed at the 15% qualified rate. Susan would incur capital gains and qualified dividend taxes in 2018. Susan's has $2,000 in realized gains for 2018. Susan would recognize $290 in dividends for 2018. Select one: 1 and 2 2 and 3 1, 2, and 3 1, 2, and 4 2, 3, and 4
1, 2, and 4 (1. Susan's dividends would be taxed at the 15% qualified rate. Yes. Her taxable income is within the 15% qualified range. 2. Susan would incur capital gains and qualified dividend taxes in 2018. No capital gains in 2018 as she still holds her Walmart stock. She did not sell in 2018. 3. Susan's has $2,000 in realized gains for 2018. No capital gains in 2018 as she still holds her Walmart stock. She did not sell in 2018. 4. Susan would recognize $290 in dividends for 2018. Yes. Dividends would be recognized on her tax return.)
Edward's employer provides him with $80,000 of group term life insurance for which Edward pays none of the premiums. Edward is 56 years old at the end of the year. 1. How much of the coverage can he exclude? 2. How much of the coverage does he need to include in his gross income?
1. He can exclude the cost of the first $50,000 of coverage. 2. He must include $154.80 (30 thousand x $0.43 per thousand per month x 12 months) in his gross income. (.43 is from tax table)
Assume the following payments meet the tax requirements for deductible alimony. Which of the following alimony payment streams will result in alimony recapture to the payor? Year 1 Year 2 Year 3 1.$100,000 $120,000 $150,000 2. $0 $10,000 $50,000 3.$50,000 $40,000 $30,000 4.$60,000 $45,000 $25,000 Select one: 1 2 3 4
4 (Alimony recapture will occur if there is a more-than-$15,000 decrease in alimony payments between the first and second year, or second and third year. Option #4 is correct because there is a drop of $20,000 from Year 2 to Year 3.)
Which of the following is not a qualifying person for the purpose of employer-provided dependent care assistance? Select one: A child of the employee regardless of whether the child can be claimed as a dependent on the employee's tax return. A dependent of the employee who has not attained the age of 13. A dependent of the employee who is physically or mentally incapable of caring for himself and who has the same principal place of abode as the employee for more than one-half of the year. The employee's spouse who is physically or mentally incapable of caring for himself and who has the same principal place of abode as the employee for more than one-half of the year.
A child of the employee regardless of whether the child can be claimed as a dependent on the employee's tax return. (Options b, c, and d list the three categories of qualifying persons for the purpose of employer-provided dependent care assistance. Under the rules, a child of the employee must be claimed as a dependent of the employee in order to exclude employer-provided dependent care assistance from the employee's income.)
Sean owns stock in the McNamara Corporation. Sean has a basis in his stock of $100. Which of the following would not be included in Sean's income? Select one: Qualified dividends received from McNamara Corporation. A distribution by McNamara Corporation to its shareholders in excess of earnings and profits, of which Sean's share of the distribution is $50. Dividends paid by the McNamara Corporation of less than $10. Dividends paid by the McNamara Corporation, assuming that it is not a U.S. corporation.
A distribution by McNamara Corporation to its shareholders in excess of earnings and profits, of which Sean's share of the distribution is $50. (Distributions in excess of earnings and profits are treated as a nontaxable return of invested dollars until the shareholder's entire tax basis in the stock has been recovered. Sean's basis in his stock is $100 and the distribution is only $50. Therefore, the distribution is not included in Sean's income.)
Which of the following statements concerning the proceeds of a life insurance policy is correct? Select one: Proceeds paid by reason of the death of the insured are always included in the income of the recipient. When the owner of a life insurance policy surrenders a life insurance policy to the issuing insurance company in exchange for the cash surrender value of the policy, the owner of the policy is not required to recognize any gross income. Life insurance proceeds are not included in gross income of the new owner if the life insurance policy is sold ("transferred for value") by the original owner of the policy. Accelerated death benefits paid by an insurance company under a life insurance policy before the death of the insured are excluded from gross income if the insured person is terminally ill.
Accelerated death benefits paid by an insurance company under a life insurance policy before the death of the insured are excluded from gross income if the insured person is terminally ill. (Option a is incorrect because proceeds of an insurance policy paid by reason of the death of the insured are generally excluded from the income of the recipient. Option b is incorrect because the owner of the policy is required to recognize gross income upon surrendering a life insurance policy in exchange for the cash surrender value of the policy. Option c is incorrect because the proceeds are included in the gross income of the new owner if the life insurance policy is transferred for value by the original owner.)
Distributions are tax free if it is a qualified distribution and meet what two requirements
Account open for 5 years Distributions are made after age 59.5, disability, or death
Addison pays $15,000 for an annuity that will pay $1,000 a year, starting this year. If the annuity is for a term of 20 years, how much taxable income will Addison have from the annuity each year? Select one: Addison will never have taxable income resulting from annuity distributions. Addison will have $250 of taxable income from the annuity each year. Addison will have $750 of taxable income from the annuity each year. Addison will have $1,000 of taxable income from the annuity each year.
Addison will have $250 of taxable income from the annuity each year. (Addison's exclusion ratio is 0.75 (amount paid of $15,000 divided by total payments to be received of $20,000). The exclusion ratio is then multiplied by the annual payment. Therefore, $750 of each annuity payment will be excluded from Addison's income and $250 will be included in Addison's gross income.)
Addison pays $15,000 for an annuity that will pay $1,000 a year, starting this year. If the annuity is for a term of 20 years, how much taxable income will Addison have from the annuity each year? Select one: Addison will never have taxable income resulting from annuity distributions. Addison will have $250 of taxable income from the annuity each year. Addison will have $750 of taxable income from the annuity each year. Addison will have $1,000 of taxable income from the annuity each year.
Addison will have $250 of taxable income from the annuity each year. (Addison's exclusion ratio is 0.75 (amount paid of $15,000 divided by total payments to be received of $20,000). The exclusion ratio is then multiplied by the annual payment. Therefore, $750 of each annuity payment will be excluded from Addison's income and $250 will be included in Addison's gross income.)
Gross Income - deductions for AGI (aka above-the-line deductions)=
Adjusted Gross Income (the line)
With regard to the alimony deduction related to a post-1984, pre-2019 divorce, which one of the following statements is correct? Select one: Alimony is deductible by the payor spouse, and includible by the payee spouse, to the extent that payment is contingent on the status of the divorced couple's children. The divorced couple may be members of the same household at the time alimony is paid, provided that the persons do not live as husband and wife. Alimony payments must terminate on the death of the payee spouse. Alimony may be paid either in cash or in property.
Alimony payments must terminate on the death of the payee spouse. (For post-1984, pre-2019 divorce agreements and decrees, payments to former spouses are alimony only if: • The payments are in cash; • The agreement or decree does not specify that the payments are not alimony for federal income tax purposes; • The payee and payor are not members of the same household at the time the payments are made; and • There is no liability to make the payments for any period after the death of the payee.)
What is the difference between incentive stock options and nonqualified stock options (NQSOs)? Your answer was correct. ISOs have their own specific rules in the Internal Revenue Code ISOs confer better tax treatment if the employee meets certain requirements Exercising ISOs can be subject the employee to the alternative minimum tax All of the above
All of the above
John, the majority shareholder in ABC, Inc., received an interest-free loan from the corporation. Which of the following is/are correct? Select one: If the loan is classified as an employer-employee loan, the corporation's taxable income will not be affected by the imputation of interest. If the loan is classified as a corporation-shareholder loan, the corporation's taxable income will increase as a result of the imputation of interest. If John uses the funds to take a vacation, the imputation of interest will cause a net increase to his taxable income. All of the above
All of the above. (If the loan is classified as an employer-employee loan, the corporation must accrue interest income and compensation expense. Thus, the corporation's taxable income will not be affected. Thus, it follows that Option (a) is correct. Option (b) is also correct because the corporation will have interest income, and the offsetting adjustment is a dividend paid, which is not deductible by the corporation. If John uses the funds for a vacation, he must recognize either dividend income or compensation income. He will not have an offsetting deduction for the interest on funds used for personal expenditures. Therefore, Option c is also correct.)
Anne recently decided to adopt a special needs child named Ford. Anne was excited to find out that her employer has an adoption assistance program that reimburses the maximum possible amount to employees who adopt children. Anne incurs the following expenses in 2018 associated with her adoption of Ford: Legal fees of $5,000. Court costs of $2,000. Renovation costs of $4,000 (to make her home more accessible to Ford). How much can Anne receive as a reimbursement from her employer and how much of that payment can she exclude from her income? Select one: Anne can receive $11,000 from her employer and can exclude all of it from her income. Anne can receive $13,810 from her employer and can exclude all of it from her income. Anne can receive $7,000 from her employer, but can exclude $11,000 from her income. Anne can receive $7,000 from her employer, but can exclude $13,810 from her income.
Anne can receive $13,810 from her employer and can exclude all of it from her income. (Because Anne is adopting a special-needs child, she can receive the maximum reimbursement from her employer of $13,810 (without regard to her actual qualified adoption expenses) and all of that payment can be excluded from her gross income. If Anne had adopted a child that did not have special needs, only the legal fees and court costs (the qualified adoption expenses) would have been subject to reimbursement.)
Employer paid premiums for long term care are deducted if....
Benefits are less than $360/day Benefits are less than the actual cost of care (not available through cafeteria plan or flexible spending account)
A fringe benefit avoids constructive receipts if....
Benefits are qualified Plan does not favor HCEs (is not discriminatory) Nontaxable benefits to Key Employers < 25% of nontaxable benefits provided to all employees
Foreign earned income can be excluded if a resident passes one of two what tests?
Bona Fide resident test Physical Presence test
The 7 activities of daily living (ADL) under long term care are....
Cognitive impairment Continence Dressing Eating Bathing Toileting Transferring (remember ccdebtt, credit card debt terrors) (cognitive impairment may not be included)
All of the following statements concerning community property are correct, EXCEPT? Select one: If two married taxpayers file married filing separately, the community property income is divided equally, but the separate property income is reported by the spouse owning the separate property. In community property states, half of the income earned (wages, salaries, etc.) by a spouse is deemed to be earned by each spouse and half of the income earned from community property is deemed to be the income of each spouse. Community property rules that characterize earned income continue to apply after a married couple divorces. Property acquired before marriage or acquired by gift or inheritance before or after marriage is normally considered to be the separate property of the spouse.
Community property rules that characterize earned income continue to apply after a married couple divorces. (Upon divorce, all future earned income of the former spouses is separate income. The subsequent sale of community property acquired during marriage, however, will be impacted by the community property rules that applied when the property was acquired.)
All of the following statements concerning community property are correct, EXCEPT? Select one: If two married taxpayers file married filing separately, the community property income is divided equally, but the separate property income is reported by the spouse owning the separate property. In community property states, half of the income earned (wages, salaries, etc.) by a spouse is deemed to be earned by each spouse and half of the income earned from community property is deemed to be the income of each spouse. Community property rules that characterized earned income continue to apply after a married couple divorces. Property acquired before marriage or acquired by gift or inheritance before or after marriage is normally considered to be the separate property of the spouse.
Community property rules that characterized earned income continue to apply after a married couple divorces. (Upon divorce, all future earned income of the former spouses is separate income. The subsequent sale of community property acquired during marriage, however, will be impacted by the community property rules that applied when the property was acquired.)
Henrietta is unmarried, has a high-deductible medical plan, and recently set up an HSA. Under what circumstances are contributions to Henrietta's HSA deductible for 2018? Select one: Contributions to Henrietta's HSA by her employer are deductible by Henrietta. Contributions made by Henrietta are only deductible to the extent that her contributions exceed the deductible on her high-deductible plan. Contributions made by Henrietta up to $3,450 are deductible. Contributions are only deductible to the extent of qualified medical expenses.
Contributions made by Henrietta up to $3,450 are deductible. (Option a is not correct because contributions made to Henrietta's HSA by her employer are deductible by the employer, not Henrietta. Option b is not correct because, beginning in 2007, the contribution limit is not determined by the deductible of the high-deductible plan. In addition, for years before 2007, the contribution would only be deductible up to the amount of the deductible, not the amount that exceeds the deductible. Option d is not correct. Although distributions are only tax-free if they are used to pay for qualified medical expenses, contributions are not affected by qualified medical expenses. For 2018, Henrietta's contributions up to $3,450 are deductible.)
Twenty-five years ago, Derek paid $11,000 for an annuity that paid $625 a year for life. At the time he purchased the annuity, Derek's life expectancy was 22 years. How much taxable income will Derek have from the annuity this year? Select one: Derek will have no taxable income from the annuity. Derek will have $125 of taxable income from the annuity this year. Derek will have $500 of taxable income from the annuity this year. Derek will have $625 of taxable income from the annuity this year.
Derek will have $625 of taxable income from the annuity this year. (Because Derek has exceeded his life expectancy of 22 years, the entire annuity payment received this year must be included in his gross income.)
On January 1, Donald loaned his daughter, Ivanka, $90,000 to purchase a new personal residence. There were no other loans outstanding between Donald and Ivanka. Ivanka's only income was $30,000 salary and $4,000 interest income. Donald had investment income of $200,000. Donald did not charge Ivanka interest. The relevant federal rate was 9%. For the current year: Select one: Ivanka must recognize $8,100 (0.09 x $90,000) imputed interest income on the loan. Donald must recognize imputed interest income of $4,000. Donald must recognize imputed interest income of $8,100. Ivanka is allowed a deduction for imputed interest of $8,100.
Donald must recognize imputed interest income of $4,000. (Since the loan is not more than $100,000, the imputed interest will be the applicable federal rate minus the actual rate, limited to Ivanka's net investment income. The federal rate would be $8,100 (9% x $90,000). Donald would impute the lesser of the federal rate or Ivanka's net investment income. Since Ivanka's net investment income is $4,000, the imputed interest income to Donald is $4,000, and the imputed interest expense to Ivanka is $4,000.)
Which of the following requirements must be satisfied in order for a U.S. citizen to exclude foreign earned income from U.S. taxation? Select one: Both the bona fide resident test and the physical presence test must be satisfied. The income must be earned by employees of the U.S. government. The taxpayer must also elect to take the foreign tax credit. Either the bona fide resident test or the physical presence test must be satisfied.
Either the bona fide resident test or the physical presence test must be satisfied. (A taxpayer who has foreign earned income is not required to satisfy both the bona fide resident test and the physical presence test. If the foreign earned income is earned by an employee of the U.S. government, it must be included in the taxpayer's gross income. A taxpayer must choose either to exclude the foreign earned income from gross income or take the foreign tax credit; a taxpayer may not choose to do both.)
Employee death benefits are excluded if....
Employer has no obligation to pay Facts indicate gratuitous payment
Attributes of Health Savings accounts include....
Established like a medical IRA You can save for your medical expenses and use an HSA to pay your deductible The purpose is to pre save for health expenses (similar to college 529 plan) Is on the employer to fund (limited at $3,450 for individual and $6,850 for families)
Employees can _____ health insurance premiums paid by employers (deduct/exclude)
Exclude
Are employee deferments included or excluded from income?
Excluded (b/c it is taken out of your paycheck before you receive it)
"Turning on" a stock option is called....
Exercising an option
A Commercial Airline permits its employees to enjoy personal travel on its scheduled flights at no charge and receive reserved seating. The employees do not have to pay taxes. (T/F)
False (Because Commercial Airline foregoes potential revenue by permitting the employees to reserve seats, employees receiving free flights are not eligible for the no-additional-cost exclusion and must include the value of the flight in their gross income.)
Tuition reduction granted to employees of education institutions performing research is taxable. (T/F)
False (Graduate education excluded if student performs teaching or researching activities)
Disability insurance benefits are taxable if the employee pays the premium? (T/F)
False (if the employee pays the premium then it is not taxable)
A free athletic facility pass that is provided to employees to go to a public gym is not taxable. (T/F)
False (it has to operated by the employer, located on the employer's premises and occupied by substantially all employees)
A Commercial Airline permits its employees to fly stand-by and board seats on plans if there is available capacity (without reserving seats). The employees have to pay taxes on this benefit. (T/F)
False (employees receiving those flights are eligible for the no-additional-costs exclusion and may exclude the value of the flight from their gross income.)
If an employee uses their credit card to purchase traveling expenses such as plane tickets and hotel rooms and they are later reimbursed by their employer then they must pay taxes on the frequent flier miles. (T/F)
False (Frequent flyer miles and other promotional benefits (through rental car agencies or hotels) attributable to taxpayer's business that are exchanged for free travel and upgrades etc., are not currently considered income taxable)
Incentive Stock Option (ISO) Grant:___________ Exercise: ___________
Grant: no income recognition Exercise: no income recognition (LTCF if held for 2 years from date of grant and 1 year from date of exercise)
Non-Qualified Stock Options (NQSO) Grant:__________ Exercise: ____________
Grant: no income recognition Exercise: ordinary income on gain
Employees are considered key employees if....
Greater than 5% owner Greater than 1% owner with compensation greater than $150,000 (not indexed) Officer with compensation greater than $175,000
Employees are considered highly compensate if....
Greater than 5% owner Compensation in excess of: $120,000
Income-Exclusions=
Gross Income
Bona Fide Residence Test
Intend to work there for indefinite/long-term period Establish permanent quarters for self and family
Trip loans $11,000 to his sister, Tish, and does not charge her interest. Which of the following statements describes the income tax consequences of this transaction? Select one: Interest would not be imputed because the loan is less than the amount of the gift tax annual exclusion. Interest would be imputed because loans of $100,000 or less are always exempt from both income tax and gift tax consequences. Interest would be imputed if Tish has unearned income of $1,100. Interest would not be imputed if Tish's earned income is less than $1,000.
Interest would be imputed if Tish has unearned income of $1,100. (Answer a is incorrect because gift loans do not qualify for the gift tax annual exclusion. Answer b is incorrect; loans of less than $10,000 are exempt from both income tax and gift tax consequences. Answer d is incorrect because whether interest is imputed on this loan is based on Tish's level of unearned income, not earned income. Answer c is correct; because the loan was for more than $10,000 and Tish has unearned income of more than $1,000, interest should be imputed on the loan.)
Jeremy and Juliet were divorced in 2016. Jeremy has been ordered by the court to pay alimony to Juliet. In the first year after the divorce, Jeremy pays Juliet $100,000. In the second year after the divorce, he pays her $50,000. In the third year, Jeremy pays Juliet $20,000. How much alimony recapture must Jeremy report in the third year? Select one: Jeremy is not subject to alimony recapture. Jeremy must report $43,333 in alimony recapture for the overpayment in the first year. Jeremy must report $72,500 in alimony recapture. Jeremy must report $110,000 in alimony recapture.
Jeremy must report $72,500 in alimony recapture.
Which of the following fringe benefits provided by Oceanside Company would be taxable to its employee, Violet? Select one: Flowers sent to Violet when her mother was ill. The value of doughnuts provided by Oceanside on a weekly basis for the enjoyment of all employees. Monthly dues to the local health club paid by Oceanside for Violet and all other employees. A 10% employee discount on merchandise sold by Oceanside.
Monthly dues to the local health club paid by Oceanside for Violet and all other employees. (In order for an athletic facility to be nontaxable, it must be on the premises of the employer. The other choices are all nontaxable to employees, assuming they are not provided on a discriminatory basis.)
Mike, a short order cook at the Bull's Corner restaurant, works from 12 p.m. to 10 p.m. five days a week. Each workday, he is furnished two meals without charge. The manager of the restaurant encourages Mike to eat lunch in the employee break room each day before 12 p.m., but does not expressly require him to do so. The manager does, however, require Mike to eat dinner in the employee break room. The cost to the restaurant is $5 per lunch and $7 per dinner. Assuming that Mike eats both lunch and dinner at the restaurant, what amount of this fringe benefit should be included in Mike's income? Select one: Neither the cost of the lunches nor the cost of the dinners should be included in Mike's income. Only the cost of the lunches should be included in Mike's income because he is not required to eat them. Only the cost of the dinners should be included in Mike's income because is he required to eat them as part of his job. Both the cost of the lunches and the dinners should be included in Mike's income.
Neither the cost of the lunches nor the cost of the dinners should be included in Mike's income. (Because Mike is a food service employee and works during the normal lunch and dinner periods, he can exclude the value of the lunches and dinners from his gross income. This example does not appear to fall within the new 2018 rules regarding a 50% limitation on the deduction for the employer for meals provided to employees for the convenience of the employer. )
Which of the following fringe benefits provided by Oceanside Company would be taxable to its employee, Violet? Select one: Flowers sent to Violet when her mother was ill. The value of doughnuts provided by Oceanside on a weekly basis for the enjoyment of all employees. Monthly dues to the local health club paid by Oceanside for Violet and all other employees. A 10% employee discount on merchandise sold by Oceanside.
Oceanside for Violet and all other employees. (In order for an athletic facility to be nontaxable, it must be on the premises of the employer. The other choices are all nontaxable to employees, assuming they are not provided on a discriminatory basis.)
Exceptions in cash method accounting rules
Original Issue Discount (OID) (Essentially you are getting the benefit of the discount that you purchased the bond at, i.e. paid 600, will get 1,000, need to divide 400 over the year and log that as income) Constructive Receipt (You want the individual tax payer not to have control or benefit from the money AA sets up a trust-> AA's parents want to give them 1k a year every 10 years-> money is currently growing in the trust, but not under AA's name-> because AA has no control over it/no benefit from it-> if given some control over the trust than AA has tax liability) If a loan is forgiven it is considered income
Patrick owns 100 shares of Darling Company stock. On December 29, 2018, Darling Company prepared the dividend checks for its shareholders. On December 31, 2018, Darling Company mailed dividend checks to all of its shareholders. Patrick did not receive his dividend check until January 3, 2019. On what date must Patrick include the dividends in his income? Select one: Patrick is not required to include the dividends in his income. Patrick must include the dividends in his income on December 29, 2018. Patrick must include the dividends in his income on December 31, 2018. Patrick must include the dividends in his income on January 3, 2019.
Patrick must include the dividends in his income on December 31, 2018. (Patrick is not required to include the dividends in his income until 2019 because the dividends were not readily available to Patrick in 2018.)
Ron and Bonnie were divorced. Their only marital property was a personal residence with a value of $300,000 and cost of $125,000. Under the terms of the divorce agreement, which did not include the word "alimony," Bonnie would receive the house. She would pay Ron $20,000 each year for five years. If Ron died before the end of the five years, the payments were to be made to his estate. Bonnie and Ron lived apart when Ron received the payments. Select one: Ron does not recognize any income from the above transaction. Ron must recognize a $87,500 [1/2 x ($300,000 - $125,000)] gain on the sale of his interest in the house. Bonnie can deduct $20,000 a year for alimony paid. Bonnie can deduct $25,000 as alimony paid.
Ron does not recognize any income from the above transaction. (The payments are not alimony because the payments would continue after the death of the payee.)
Adjust Gross Income - (Itemized or standard deduction + Personal and Dependency exemptions (suspended after 2017) + 20% deduction for qualified business income deduction (after 2017))=
Taxable Income
Tax on Taxable Income - Tax Credits=
Taxes Due
Accrual Basis accounting
Taxpayers recognize income when it is earned (most businesses) (income is earned all events have occurred to fix taxpayer's right to the income)
Cash-Basis accounting
Taxpayers recognize income when it is received (or set aside)
Gibbs has an account at First Maryland Bank. $10,000 of his account balance is invested in a certificate of deposit (CD). When must interest paid on the CD be included in Jonas' income? Select one: Interest on a CD is never included in income. The interest is included in Gibbs' income when it is added to his account balance. The interest is included in Gibbs' income when he withdraws it from the account. The interest is included in Gibbs' income when he spends it.
The interest is included in Gibbs' income when it is added to his account balance. (When interest is paid on the CD and added to Gibbs' account balance, that interest must be included in Gibbs' income even if he does not withdraw the interest from his account. The interest is includible in Gibbs' income because, even though he has not withdrawn it, it has been constructively received. The interest is constructively received because it is readily available to Gibbs and is not subject to any substantial limitations or restrictions.)
Suri recently entered an assisted living facility. She is unable to feed or dress herself, although she can still walk and go to the bathroom unassisted. She had a life insurance policy with a death payout of $100,000. She sold the policy to a viatical company for $60,000 and used the money to pay for her long-term care at the assisted living facility. Which of the following statements is true? Select one: The policy proceeds will be excluded from Suri's income. 85% of the policy proceeds will be taxed. The policy will be included in Suri's income at $100,000. The policy will be included in Suri's income at $60,000.
The policy proceeds will be excluded from Suri's income. (The policy is excluded from Suri's income because she is chronically ill (she is unable to do 2 of the 6 activities of daily living) and the money was used to pay for long-term care.)
Piper, age 68, had $50,000 in salary for the current year. She also received Social Security benefits of $10,000 and workers' compensation of $25,000. Which of the following is true? Select one: The salary, 100% of the Social Security benefits, and 100% of the workers' compensation will be taxable to Piper. The salary, 75% of the Social Security benefits, and 50% of the workers' compensation will be taxable to Piper. The salary, 50% of the Social Security benefits, and 100% of the workers' compensation will be taxable to Piper. The salary and 85% of the Social Security benefits will be taxable to Piper.
The salary and 85% of the Social Security benefits will be taxable to Piper. (The salary will be taxable at 100%. The workers' compensation is excluded from income. The Social Security benefits will be taxed at 85%.)
If something is a required condition of employment then you can exclude it from taxes. (T/F)
True
Qualified employee benefits plans, including profit-sharing plans, stock bonus plans, and money purchase plans are tax free. (True of false)
True
True or false? If the death benefit is coming from the insurance (not the employer) then the death benefit is NOT taxable?
True
You do not include employer matching contributions on your income. (T/F)
True
Disability insurance benefits are taxable if the employer pays the premium? (T/F)
True (if the employer pays the premium then it is taxable)
What is the holding period requirement for obtaining the favorable tax treatment available to incentive stock options? Your answer was correct. One year from the date of grant One year from the date of exercise One year from the date of grant and one year from the date of exercise Two years from the date of grant and one year from the date of exercise
Two years from the date of grant and one year from the date of exercise
Ralph receives stock options (ISOs) with an exercise price of $16 when the stock is trading at $16. Ralph exercises these options two years after the date of the grant when the stock price is $37 per share. Which of the following statements is correct? Select one: Upon exercise Ralph will have no income for regular tax purposes Ralph will have W-2 income of $21 per share upon exercise. Ralph's adjusted basis for regular income tax will be $37 at exercise.
Upon exercise Ralph will have no income for regular tax purposes. (Ralph does not have regular income at the date of exercise. Ralph's adjusted basis will be $16.)
Hybrid Method
Used when inventory is a material income producing factor
When does a cash-basis taxpayer recognize his or her income? Select one: when it is received when it is earned
When it is received (Cash-Basis taxpayers recognize income when it is received (or set aside) Accrual-Basis taxpayers recognize income when it is earned Hybrid Method)
Discriminatory benefits are....
benefits available to highly-compensated (key) employees are not available for non-highly compensated employees
Long-term care kicks in when you cannot....
do two or more of the 7 ADLS or fail the cognitive impairment adl
Employer contributions to a fund that provides medical benefits to employees can be ________ by employees (deduct/exclude)
excluded
Payment of employee medical expenses by the employer, insurance company, and separate funds or trust ca be _______ by employees ((deduct/exclude))
excluded
Reimbursement of employee medical expenses in the year paid by the employee reimbursed by the employer, insurance company, or a separate fund or trust, can be _________ by employees (deduct/exclude)
excluded
