Tax Chapter 5

Chester incurred $14,500 in hospital and medical bills during the current year. His health insurance policy reimbursed him $11,600 toward those expenses. What amount should be included in Chester's gross income?

$0

Chester incurred $14500 in hospital and medical bills during the current year. His health insurance policy reimbursed hum $11600 toward those expenses. What amount should be included in Chester's gross income?

$0

Jamarcus injured his hand playing softball one weekend. The injury prevented him from being able to work. Luckily for Jamarcus, he had purchased a disability policy for himself easier in the year. Jamarcus received $1300 in disability benefits while he was away from work. Jamarcus should include _____ in gross income.

$0

Mary has received the following income and fringe benefits during the current year: a $73,000 salary; $600 in employer-provided disability premiums; $5,000 in workers' compensation; $1,200 in corporate bond interest; a $23,000 car won on a game show; and a $1,200 health insurance reimbursement for medical expenses paid during the year. Which of these amounts should Mary include in her gross income?

$1,200 corporate bond interest $73,000 salary

Jamarcus injured his hand playing softball one weekend. The injury prevented him from being able to work. Luckily for Jamarcus, his employer provides disability insurance as a nontaxable fringe benefit to all employees. Jamarcus received $1,300 in disability benefits while he was away from work. Jamarcus should include $_________ in gross income.

$1,300 Since the employer paid the disability premiums, the benefits received are taxable

Frick and Frack are equal partners in F&F Industries. The company generated net income of $60000 during the year and distributed $7000 cash to both Frick and Frack. How much income should Frack report on his individual income tax return due to the partnership interest?

$30,000

Brenda received $15000 college scholarship for the current year. She used the scholarship to pay the following fees: tuition $9000, lab fees $60, parking fees $120, books $750, housing $4000, and a meal plan $1070. What can can she exclude from gross income?

$9000 tuition, $60 lab fees, $750 books

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

what are the advantages of the realization principle for defining gross income?

1. it provides an objective measure of the value of the transaction 2. it provides the taxpayer with the wherewithal to pay when cash is received int he transaction

In order to exculde the maximum amount of foreign-earned income from US taxation, the following conditions must be met

1. the taxpayer must be considered a "resident" of the foreign country 2. the taxpayer must have resided in the foreign country for 330 days in consecutive 12-month period

What describes exclusions and deferrals for tax purposes?

1. these provisions are often granted in order to subsidize or encourage particular behaviors 2. these provisions are the result of specific congressional action 3. these provisions are narrowly defined

What is correct regarding the receipt of SS benefits?

1. up to 85% of SS benefits may be taxed to taxpayers with moderate to high taxable income 2. SS benefits are not taxable if the recipient has relatively low taxable income

Which of the following situations will result in an award being excluded from gross income?

1. when the award is a noncash item valued at less than $400, and given for either safety or years of service by an employee 2. when the award is given for scientific, literary, or charitable achievement and meets certain other requirements

Social Security Benefits for MFJ:

1.If modified AGI + 50 percent of Social Security benefits ≤ $32,000, Social Security benefits are not taxable. 2.If $32,000 < modified AGI + 50 percent of Social Security benefits ≤ $44,000, taxable Social Security benefits are the lesser of (a) 50 percent of the Social Security benefits or (b) 50 percent of (modified AGI + 50 percent of Social Security benefits − $32,000). 3.If modified AGI + 50 percent of Social Security benefits > $44,000, taxable Social Security benefits are the lesser of (a) 85 percent of Social Security benefits or (b) 85 percent of (modified AGI + 50 percent of Social Security benefits − $44,000), plus the lesser of (1) $6,000 or (2) 50 percent of Social Security benefits.

Which one of the following choices states that income is realized if a taxpayer receives income and there are no restrictions on the taxpayer's use of the income? a. Claim of right doctrine b. Business purpose doctrine c. Income recognition doctrine d. Assignment if income doctrine

A

Which one of the following is NOT an advantage of the cash method for reporting income? a. Taxpayers are able to deduct expenses in the period incurred, which may be before they actually pay them b. Taxpayers recognize income in the period they receive it, giving them the wherewithal to pay the tax c. Taxpayers have some control over when income is received and expenses are paid which assets in tax planning d. The cash method generally simplifies the computation of income

A

Jerry receives an annuity payment of $2,500 per month. Jerry purchased the 20-yer annuity for $250,000. What is the amount of the annuity that represents a return of capital and is, therefore, nontaxable? a. 41.67% or $12,500 per year b. 100% or $30,000 per year c. 10% or $3,000 per year d. 12% or $3,600 per year

A $250,000/(20x2500x12)=0.4167

Bart sold a parcel of land for $21,000. He paid a real estate agent a commission of $1,500 for assisting with the sale. Bart had purchased the land several years earlier for $20,000. What is the amount realized on the sale of the land? a. $19,500 b. $21,000 c. $1,000 d. ($500)

A Amount realized= Sales proceeds - selling expenses

Which of the following represents economic benefits to a taxpayer? a. Cash received for completing a job b. Interest income on investments c. Cash received from a bank loan d. A computer received in exchange for services rendered

A/B/D

Which of the following cash receipts are taxable to the recipient? a. Gambling winnings b. Prizes c. Child support d. Loan Proceeds e. Awards

A/B/E

Chad has received the following income and benefits during the current year: $65,000 salary, $4,800 employer-provided health insurance, $1,500 municipal bond interest, $2,000 dividend income, $500 from a partnership, and a $10,000 judgement for lost wages due to an age discrimination lawsuit. What amounts should Chad include in his gross income? a. $2,000 dividend income b. $500 partnership income c. $4,800 health insurance d. $1,500 municipal bond interest e. $10,000 judgement f. $65,000 salary

A/B/E/F

Choose the type of investments that generate tax-exempt income: a. Educational savings plan b. U.S. Savings Bonds c. Municipal bonds d. Certificate of Deposit e. Life insurance policy

A/C/E

In which of the following situations has constructive receipt occurred in the earlier year? a. Arnold earned interest of $300 on his savings account, but did not withdraw the funds until the following year b. Andrew worked the last two weeks of the year, but he will not be paid for those hours until Jan 4 c. Alex was out of town on Dec 31 and, therefore, unable to pick up his final paycheck. He picked it up on Jan 2 d. Ashley's last paycheck of the year was dated Dec. 30. She was unable to cash the check because the employer had insufficient funds e. Amber received a year-end bonus check dated Dec 28, but she did not cash the check until Jan. 3

A/C/E

Which of the following choices are characteristics of Coverdell Educational Savings Accounts? a. The maximum yearly contributions to the account are limited to $2,000 for each beneficiary b. The maximum yearly contributions to the account are limited to $2,000 per taxpayer ($4,000 for mfj) c. Reasonable room and board costs are included in qualified higher education expenses d. Expenses for higher education, such as tuition and books, are NOT qualified educational expenses for this type of account e. The contribution limit is available to all taxpayers and is NOT subject to any phase out for higher levels of AGI f. The distributions can be made for qualified education expenses from kindergarten through 12th grade g. Earnings on the account are NOT taxable if used for qualified educational expenses

A/C/F/G

Business, investment and personal expenses are deducted when?

Business interest expense is a deduction for AGI, investment interest expense is an itemized deduction subject to limitations, and personal interest is generally not deductible

Chester incurred $14,500 in hospital and medical bills during the current year. His health insurance policy reimbursed him $11,600 toward those expenses. What amount should be included in Chester's gross income? a. $2,900 b. $11,600 c. $0 d. $14,500

C

What are the tax consequences for a taxpayer who dies before recovering his investment in an annuity contract? a. One-half of the annuity payment is taxable on the taxpayer's final income tax return b. The entire amount of the annuity received in the year of death is nontaxable on the taxpayer's final income tax return c. The amount of the unrecovered investment is deducted on the taxpayer's final income tax return d. The entire amount of the annuity received in the year of death is taxable on the taxpayer's final income tax return

C

Which of the following statements is CORRECT regarding the recognition of income? a. Income is realized for the return of the capital received in a sales transaction b. Income is realized when a taxpayer receives a refund of an amount that was not deducted in a prior period c. Income may be in the form of cash, property, or services in a transaction

C

Which of the following statements is NOT correct regarding alimony? a. Alimony is deductible for AGI for the person paying it b. Alimony payments must be made in cash c. Alimony is another term for child support d. Alimony is included in gross income of the person receiving it

C

Which of the following types of interest income is excluded from federal taxation? a. Federal government bonds b. Corporate bonds c. Municipal bonds

C

Income from services, including business income, is referred to as _______ income.

Earned

education

Earnings on investments in plans such as section 529 plans, Coverdell savings accounts, and U.S. series EE bonds are excluded from taxation if the proceeds are used for qualifying _____ expenses.

Nonrecognition provisions refer to specific types of income that taxpayers realize but are allowed to permanently _______ from gross income or temporarily ________ until a later period.

Exclude/Defer

for

Expenses associated with generating rental or royalty income are deductible _____ AGI.

T/F In general, prizes awarded to taxpayers are excluded from gross income

FALSE

T/F Scholarships received by college students qualify as gifts and are, therefore, nontaxable. The actual use of the money (tuition, fees, housing, meals, and any other expenses) does not affect the taxable status of the scholarship

FALSE

T or F: Gross income only includes income received in cash because cash is a measurable change in wealth.

False

250000

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.

Up to 85% of _____ benefits, in retirement, may ne taxable for taxpayers with moderate to high taxable income.

Social Security

Up to 85% of ___________ _____________ benefits, in retirement, may be taxable for taxpayers with moderate to high taxable income.

Social Security

Up to 85% of ________ ________ benefits, in retirement, may be taxable for taxpayers with moderate to high taxable income.

Social/Security

T/F Income and deductions generated withing a partnership or S corp that are subject to various tax treatments (qualified dividends, capital gains, etc) retain their character when they flow-through to the owners rather than being reclassified as ordinary income or loss

TRUE

T/F income and deductions from a partnership or S corporation are taxed on the owners' tax returns rather than the entity tax return

TRUE

To eliminate any tax advantages of below-market loans

Tax law generally requires the lender and borrower to treat the transaction as if: 1)The borrower paid the lender the difference between the applicable federal interest rate (compounded semiannually) and the actual interest paid (this difference is called imputed interest). 2)The lender then returned the imputed interest to the borrower.

Social Security Benefits for MFS:

Taxable Social Security benefits are the lesser of (a) 85 percent of the Social Security benefits or (b) 85 percent of the taxpayer's modified AGI + 50 percent of Social Security benefits.

If discharge of indebtedness makes taxpayer solvent?

Taxpayer recognizes gross income to the extent of his solvency.

bunching

The system of shifting itemized deductions into one year such that the amount of itemized deductions exceeds the standard deduction for the year, and then deducting the standard deduction the next year is known as _____ itemized deductions.

Which of the following choices describe exclusions and deferrals for tax purposes?

These provisions are the result of specific congressional action. These provisions are narrowly defined. These provisions are often granted in order to subsidize or encourage particular behaviors.

Under the realization principle, income is realized when (1) a taxpayer engages in a _____ with another party, and (2) the _____ results in a _____ change in property rights.

Transaction, transaction, measurable

The deemed "payment" of the imputed interest in below-market loan transactions

Treated as interest income to the lender and interest expense to the borrower. The deductibility of the interest expense for the borrower depends on how she used the loan proceeds (for business, investment, or personal purposes).

T or F: Income and deductions generated within a partnership or S corporations that are subject to various tax treatments retain their character when they flow-through to the owners rather than being reclassified as ordinary income or loss.

True

T or F: Punitive damaged are fully taxable to the recipient.

True

false

True or false: Activities classified as hobbies can generate tax deductible losses that can be used against other types of income.

false

True or false: Business expenses are reported directly on the Form 1040 and are deducted for AGI.

false

True or false: Darlene owns stock in several different companies. when she received a dividend check from her avatar stock, she endorsed the checks and deposited the money in her daughter's checking account. consequently, her daughter will be assessed the tax on the dividends.

true

True or false: Gambling expenses and losses to the extent of gambling winnings are reported as miscellaneous itemized deductions.

true

True or false: Income and deductions generated within a partnership or S corporation that are subject to various tax treatments (i.e. qualified dividends, capital gains, etc.) retain their character when they flow-through to the owners rather than being reclassified as ordinary income or loss.

false

True or false: Interest income is generally taxed at lower capital gains rates.

savings bonds

U.S. do not pay periodic interest payments, but the interest accumulates over the term of the bond.

If taxpayer receiving life annuity lives longer than originally estimated

Ultimately receive more than expected number of payments. The entire amount of these "extra" payments is included in the taxpayer's gross income because the taxpayer has completely recovered her investment in the annuity by the time she receives them.

Income from property is referred to as _______ income.

Unearned

Gross income means all income from ____________ ____________ ______________.

Whatever source derived

Gross income means all income from _______ _________ __________

Whatever/Source/ Derived

recognize

When a taxpayer includes an economic benefit in gross income, he is said to have _____ the income.

Discharge of Indebtedness

When a taxpayer's debt is forgiven by a lender (the debt is discharged), the taxpayer must include the amount of debt relief in gross income

ordinary income

When donating _____ property as a charitable contribution, taxpayers can only deduct the lesser of (1) the property's fair market value or (2) the property's adjusted basis.

The term used when one former spouse is required to provide financial support to the other spouse pursuant to a legal separation or divorce is ______

alimony

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

Beginning in 2019, in the case of a divorced couple, _______ payments are excluded from gross income of the recipient and __________ for the payor

alimony; not deductible

Which of the following statements is correct concerning an inheritance?

an ineritance may be subject to the federal estate tax which is paid by the estate of the person who died

A _____________ is an investment that pays a stream of equal payments over time.

annuity

a(n) _______ is an investment that pays a stream of equal payments over time

annuity

Using scholarship, what can she exclude from gross income?

books, lab fees, tuition

What to include in income

dividend income, partnershipi income, judgment, salary

Income received as a result of services provided by the taxpayer, including business income, is referred to as _______________ income.

earned

Which ofo the following types of income is NOT generated from owning property

earnings from services rendered

Earnings on investments in plans such as Section 529 plans, Coverdell savings accounts, and US Series EE bonds are excluded from taxation if the proceeds are used for qualifying _______ expenses

educational

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

In general, when a taxpayer's debt is discharged by a lender, the taxpayer's gross income will ______ the forgiven amount

include

Interest in _________ bonds is excluded from federal income taxation.

municipal

Interest on ______ bonds is excluded from federal income taxation

municipal

In general, life insurance proceeds are _____ to the beneficiary of the policy

nontaxable

Fixed annuities- expected value

number of payments times amount of the payment. In other words, for an annuity payable over a fixed term the return of capital is simply the original investment divided by the number of payments.

Income from property

often referred as unearned income- income from property that accrues as time passes without effort on part of the owner of property. Gain or losses from the sale of property, dividends, interest, rents, royalties, and annuities.

In personal injury cases, any damages awarded due to ______ injury are exempt from taxation

physical

Income from ___________ takes different forms, such as dividends, interest, rents, royalties, and annuities.

property

Which fringe benefits provided by an employer is excluded from gross income?

qualified transportation expenses, de minimis benefits, medical insurance

Under the cash method, taxpayers recognize income inthe period the _______ it, rather than when they actually ____ i

receive; earn

When a taxpayer includes an economic benefit in gross income, he is said to have ______ the income

recognized

When a taxpayer includes an economic benefit in gross income, he is said to have _____________ the income.

recognized

disability premium benefits are

taxable

Constructive Receipt Doctrine

taxpayers realize and recognize income when it is actually received or was available to them

What are the tax consequences for a taxpayer who is receiving a life annuity and who has already lived longer than his or her life expectancy?

the entire amount of each additional payment of the annuity is taxable

Which of the following statements is INCORRECT regarding gambling winnings and losses for recreational gamblers?

the excess of gambling winnings over gambling losses are included in gross income

Andres, Badin, and Carr formed a partnership, ABC. During year 2, the partnership sold some land that was held for investment and generated a long-term capital gain. How will this income be reported on the partners' individual tax returns?

the income will retain its character and be reported as a long-term capital gain

Which of the following statements is INCORRECT regarding workers' compensation payments?

the payments are included in gross income because they are a replacement of wages

Which of the following situations satisfies the ownership test for excluding the gain on a personal residence?

the taxpayer must have owned the residence for 2 or more years during the past 5-year period ending on the date of sale

What is the tax treatment for a taxpayer receiving a gold watch valued at #350 in recognition of his 25th year of working for the same company?

the value of the watch is excluded from gross income

Under the realization principle, income is realized when (1) a taxpayer engages in a(n) _____ with another party, and (2) the ______ results in a(n) _______ change in property rights

transaction; transaction; measurable

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

Which of the following types of cash receipts is not taxable to the recipient?

Gift from a friend

When an individual transfers property to another taxpayer during their life, without receiving or expecting to receive value in return, the property transferred is a _____ and is not included in the _____ (income/property) by the person receiving the property.

Gift, nontaxable

When an individual transfers property to another taxpayer during their life, w/o receiving or expecting to receive value in return, the property transferred is a(n) ________ and is __________ (taxable/nontaxable) to the person receiving the property.

Gift; Nontaxable

five years

How many years can excess charitable contributions be carried over before expiring?

Challenge from a tax perspective with annuities

How much of each annuity payment represents gross income (income taxed at ordinary tax rates) and how much represents a nontaxable return of capital (return of the original investment).

long term care

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 _____.

For below-market-loans, the discounted interest rate is treated as interest _____ to the lender and interest _____ to the borrower.

Income/Expense

In general, when a taxpayer's debt is discharged by a lender, the taxpayer's gross income will _____ the amount forgiven.

Increase

Annuity definition

Investment that pays a stream of equal payments over time.

1300

Jamarcus injured his hand playing softball one weekend. The injury prevented him from being able to work. Luckily for Jamarcus, his employer pays the disability insurance premium and provides disability insurance as a nontaxable fringe benefit to all employees. Jamarcus received $1,300 in disability benefits wile he was away from work. Jamarcus should include ___ in gross income.

Bart sold a parcel of land for $21000. He paid a real estate agent a commission of $1500 for assisting with the sale. Bart had purchased the land several years earlier for $20000, What is the amount realized on the sale of the land?

$19500

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

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

Frick and Frack are equal partners in F&F Industries. The company generated net income of $60,000 during the year and distributed $7,000 cash to both Frick and Frack. How much income should Frack report on his individual income tax return due to the partnership interest?

$30,000 Distributions to partners are not taxable. Only the portion of the net income allocable to the partner is taxable.

During the current year, Sam received interest income from the following investments: $400 from State of Wyoming bonds, $200 from Ford Motor Co, $50 from City of Laramie bonds, $100 from US Treasury bonds. How much of the interest received will be included in gross income/

$300

Sam traded a parcel of land for a tractor and a car. He had purchased the land five years earlier for $16,000. The market value of the car and the tractor is $20,000. What is the amount of gross income resulting from this transaction?

$4,000

Daniels, Edwards, and Findley are equal partners in DEF industries. The company generated net income of $180,000 during the year and distributed $20,000 cash each of the partners. Edwards will report $__________ in taxable income from the partnership.

$60,000

Andrea owed $12000 on a medical bill to University Hospital. The hospital agreed to discharge the debt due to Andrea's financial situation. Immediately prior to the discharge of the debt, Andrea's debts exceeded her assets by $5000. How much of the debt forgiveness will Andrea need to include in her gross income?

$7000

Alimony Definition

(1) a transfer of cash made under a written separation agreement or divorce decree, (2) the separation or divorce decree does not designate the payment as something other than alimony, (3) in the case of legally separated (or divorced) taxpayers under a separation or divorce decree, the spouses do not live together when the payment is made, and (4) the payments cannot continue after the death of the recipient.

Types of annuities

(1) annuities paid over a fixed period and (2) annuities paid over a person's life.

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

Calculation for finding gross income of each annuity payment (life annuity) textbook

1) Investment in annuity contract 2)Expected return multiple (Exhibit 5-1, "70" years old) 3)Amount of each payment 4)Expected return (2)x(3) X 12 MONTHS 5)ROC Percentage (1)/(4) 6)ROC per payment (3)x(5) TAXABLE INCOME PER PAYMENT: (3)-(6)

Problems with Alimony

1)Definition eliminates uncertainty regarding which transfers are treated as alimony 2)It is possible to use alimony transfers to assign income from the (higher tax rate) payer of the alimony to the (lower tax rate) recipient.

Social Security Benefits for Single taxpayers

1)If modified AGI + 50 percent of Social Security benefits ≤ $25,000, Social Security benefits are not taxable. 2)If $25,000 < modified AGI + 50 percent of Social Security benefits ≤ $34,000, taxable Social Security benefits are the LESSER of (a) 50 percent of the Social Security benefits or (b) 50 percent of (modified AGI + 50 percent of Social Security benefits − $25,000). 3)If modified AGI + 50 percent of Social Security benefits > $34,000, taxable Social Security benefits are the LESSER of (a) 85 percent of Social Security benefits or (b) 85 percent of (modified AGI + 50 percent of Social Security benefits − $34,000), PLUS LESSER of (1) $4,500 or (2) 50 percent of Social Security benefits.

Other Sources of gross income

1)Income from Flow-through Entities 2)Alimony 3)Prizes, Awards, and Gambling Winnings 4)Social Security benefits 5)Imputed Income 6)Discharge of Indebtedness

Calculation for finding gross income of each annuity payment (Fixed annuity) textbook

1)Investment in annuity contract 2)Number of payments 3)Return of capital per payment (1)/(2) 4)Amount received every year GROSS INCOME PER PAYMENT: (4)-(3)

Which of the following statements is INCORRECT regarding the receipt of Social Security benefits?

1. 50% of SS benefits are taxable to all taxpayers because the employer contributed funds that were never taxed to the employee 2. SS benefits are not taxable because the contributions were taxed when the taxpayer was working

When has the constructive receipt occurred

1. alex was out of town on dec 31 and unable to pick up his final paycheck. he picked it up Jan 2 2. arnold earned interest of $300 on his savings account, but did not withdraw the funds until the following year 3. amber received a year-end bonus check dated dec 23, but did not cash the check until jan 3

Which of the following types of income are generated from property ownership?

1. dividends received on corporate stock 2. rental income from lessees 3. interest earned on US Treasury bonds 4. gain from the sale of a building

The earnings on a Section _____ plan are not taxable to the beneficiary if the distributions from the account are used to pay qualified higher education expenses.

529

The highest percentage of SS benefits that may be taxed is ___ % and only for moderate to high income taxpayers

85

The highest percentage of social security benefits that may be taxed is __________ , and only for moderate to high income taxpayers.

85%

Sam traded a parcel of land for a tractor and a car. He had purchased the land five years earlier for $16,000. The market value of the car and tractor is $20,000. What is the amount of gross income resulting from this transaction? a. $4,000 b. $20,000 c. $0 d. $16,000

A

Which of the following choices does NOT describe an annuity? a. It is a lump sum payment that is usually received by the beneficiary of a life insurance policy b. It is a means of generating a fixed income stream during retirement c. It is an investment that pays a stream of equal payments over time

A

Which of the following choices does not describe an annuity? a. It is a lump sum payment that is usually received by the beneficiary of a life insurance policy b. It is a means of generating a fixed income stream during retirement c. It is an investment that pays a stream of equal payments over time

A

Which of the following types of imputed income are NOT included in gross income (i.e. are NOT taxable)? a. A bargain purchase between a father and his son b. An employer's $12,000 loan to an employee with no interest on the note c. Employee discounts of 25% on services

A A bargain purchase between family members is generally deemed to be a gift, thus nontaxable to the recipient

Which of the following statements is correct concerning a gift?

A gift may be subject to "gift tax" which is paid by the person giving the gift.

Which of the following choices are characteristics of qualified tuition programs, also known as Section 529 plans? a. Earning on the account are not taxable if used for qualified higher education expenses b. The distributions can be made for qualified education expenses from kindergarten through 12th grade c. Distribution made to the beneficiary for purposed other than education will incur taxation and a penalty on the earnings of the plan d. The maximum yearly contributions to the account are limited to $2000 for each beneficiary e. Distributions to contributors are not subject to income tax, but they do incur a 10% penalty

A, B, C

Choose the types of investments that generate taxable income. a. Corporate bonds b. US Savings Bonds c. Educational savings plan d. Certificate of Deposits e. Municipal bonds

A, B, D

Under the realization principle, what must occur for income to be realized? a. A taxpayer must engage in a transaction with another party b. A taxpayer must receive cash to realize income c. The transaction must result in a measurable change in property rights d. A measurable change in wealth must occur, regardless of whether a transaction takes place

A, C

What are the advantages of the realization principle for defining gross income? a. It provides an objective measure of the value of the transaction b. It allows the taxpayer to exclude the transaction from gross income c. It provides the taxpayer with the opportunity to shift income to a related taxpayer who is in a lower tax bracket d. It provides the taxpayer with the wherewithal to pay when cash is received in the transaction

A, D

Cha has received the following income and benefits during the current year: $65000 salary, $4800 employer-provided health insurance, $1500 municipal bond interest, $2000 dividend income, $500 from a partnership, and a $10000 judgment for lost wages due to an age discrimination lawsuit. What amounts should Chad include in his gross income? a. $10000 judgment b. $4800 health insurance c. $1500 municipal bond interest d. $65000 salary e. $2000 dividend income f. $500 partnership income

A, D, E, F

Which of the following statements are correct when describing "Workers' Compensation?" a. Workers compensation benefits are not taxable to the recipient because the payments result from a physical injury b. Workers' compensation benefits are taxable to the recipient because this insurance was provided tax-free by the employer c. Both "worker's compensation" and "unemployment compensation" are taxable to the recipient d. Workers' compensation is another term for "unemployment compensation" e. Workers' compensation benefits are paid to employees who have been injured in a work-related situation

A, E

Certain types of investments may be tax-advantaged when used to help fund higher education. The growth in value and earnings from the investment are nontaxable if the proceeds are used to pay for qualifying educational expenditures. Which of the following types of investments qualify for this treatment? a. Section 529 plans b. U.S. Series EE bonds c. Coverdell savings account d. Municipal bonds e. Roth IRA plans

A/B/C

Which of the following choices describe exclusions and deferrals for tax purposes? a. These provisions are narrowly defined b. These provisions are the result of specific congressional action c. These provision reduce the tax liability dollar for dollar d. These provisions are often granted in order to subsidize or encourage particular behaviors e. These provisions are generally deducted from AGI and reduce taxable income

A/B/D

Which of the following situations will result in an award being excluded from gross income? a. When the award is a non cash item valued at less than $400, and given for either safety or years of service by an employee b. When the award has a charitable component, such as a television giveaway, where guests are given needed items c. When the award is given during the holidays, such as a Christmas cash bonus, since the intent of the award is to be a gift d. When the award is given for scientific, literary, or charitable achievement and meets certain other requirements

A/D

Brenda received a $15,000 college scholarship for the current year. She used the scholarship to pay the following fees: tuition $9,000 lab fees $60, parking fees $120, books $750, housing $4,000, and a meal plan $1,070. What can she exclude from gross income? a. $60 lab fee b. $4,000 housing c. $120 parking fees d. $1,070 meals e. $9,000 tuition f. $750 books

A/E/F

The term used when one former spouse is required to provide financial support to the other spouse pursuant to a legal separation or divorce is ________.

Alimony

In the case of a divorced couple, _____ payments are included in the gross income of the recipient and deductible _____ AGI for the payor.

Alimony/ For

gross

All income from whatever source derived is _____ income.

Alimony and gross income

Amount of the payment is included in the gross income of the person receiving it and is deductible for AGI by the person paying it. Thus, alimony shifts income from one spouse to the other.

If taxpayer receiving life annuity lives shorter than originally estimated

Amount of the unrecovered investment (the initial investment less the amounts received that is treated as a nontaxable return of capital) is deducted on the taxpayer's final income tax return

common law

Ann and Andy live in a state where all of the income earned from the services of Ann are included only in her gross income. they live in a state with a(n) _____ system.

nontaxable

Any reimbursement a taxpayer receives from a medical or accident insurance policy for medical expenses paid by the taxpayer during the current year are _____ (taxable/nontaxable) for the taxpayer.

Prizes, Awards, and Gambling Winnings

Are all included in gross income.

The _______ ____ __________ doctrine holds that the taxpayer who earns income from services must recognize the income, and the income from property is taxed to the person who owns the property,

Assignment/Of/Income

Downside of the first exception of the Prizes, Awards, and Gambling Winnings rule

Award recipient does not actually get to receive/keep the cash from the award. However, for tax purposes it is more beneficial for the recipient to exclude the award from income entirely by immediately transferring it to a charitable organization than it is to receive the award, recognize the income, and then contribute funds to a charity for a charitable deduction.

First Exception to the Prizes, Awards, and Gambling Winnings rule

Awards for scientific, literary, or charitable achievement such as the Nobel Prize are excluded from gross income, but ONLY IF (1) the recipient was selected without any action on his part to enter the contest or proceeding, (2) the recipient is not required to render substantial future services as a condition to receive the prize or award, and (3) the payer of the prize or award transfers the prize or award to a federal, state, or local governmental unit or qualified charity such as a church, school, or charitable organization designated by the taxpayer.

Allison won't $3,200 betting on a long-shot in the Kentucky Derby. Unfortunately, she lost her lucky streak and ended up losing $5,000 on her next (and last) trip to the racetrack. Allison heard that she will be able to deduct her gambling losses, so she is feeling a little better. How much of Allison's losses will she be able to deduct? a. $0- Gambling is not a business venture, so she will not deduct any of her losses b. $3,200- She can only deduct the losses to the extent of her winnings c. $5,000- She can deduct the full amount if she has documentation that verifies the losses

B

How are the proceeds from a life insurance policy treated if the policy is cashed in early for its surrender value when there is no chronic or terminal illness present? a. The excess of the cash surrender value over the premiums is deducted from the taxpayer's gross income b. The excess of the cash surrender value over the premiums is included from the taxpayer's gross income c. The proceeds from the policy are excluded from the taxpayer's gross income d. The proceeds from the policy are fully included in the taxpayer's gross income

B

What is the typical tax treatment for income from labor such as salaries, wages, and fees? a. It is nontaxable b. It is taxable c. It is tax-deferred d. It is tax-exempt

B

Which of the following fringe benefits provided by an employer is NOT excluded from gross income? a. Medical insurance b. Group life insurance coverage in excess of $50,000 c. Qualified transportation expenses d. De minimis (or small) benefits

B

Which of the following options is NOT available to taxpayers who have worked outside the United States and meet the requirements necessary to receive tax relief on their foreign earnings? a. Income exclusion for foreign-earned income b. Tax deduction for foreign-earned income c. Tax deduction for foreign taxes paid d. tax credit for foreign taxes paid

B

Which of the following statements is correct concerning a gift? a. A gift may be subject to "gift tax" which is paid by the person receiving the gift b. A gift may be subject to "gift tax" which is paid by the person giving the gift c. A gift is included in the gross income of the person receiving the gift and subject to income tax d. A gift is included in the gross income of the person giving the gift and subject to income tax

B

Which of the following statements is correct regarding the recognition of income? a. Income is realized when a taxpayer receives a refund of an amount that was not deducted in a prior period b. Income may be in the form of cash, property, or services received in a transaction c. Income is realized for the return of capital received in a sales transaction

B

Which of the following statements is incorrect regarding gross income? a. Exclusions and deferrals are a result of specific Congressional action and narrowly defined b. Income is only included in gross income when spelled out in specific tax provisions c. Some types of income may be temporarily deferred from gross income to be included in a later year d. Specific types of income may be excluded from gross income by Congress

B

Which of the following types of imputed income are not included in the gross income and are not taxable to the person receiving the benefit? a. An employer's $12000 loan to an employee with no interest on the note b. A bargain purchase between a father and his son c. Employee discounts of 25% on services

B

Which of the following statements are characteristics of alimony in a divorce decree entered into before 2019? a. Alimony can include property divisions between ex-spouses in a divorce agreement b. Alimony is included in the gross income of the person receiving it c. Alimony payments can not continue after the death of the recipient d. Alimony is deductible for AGI for the person paying it e. Alimony is not deductible to the person paying it f. Alimony may not be paid to a spouse who is still living with the payor as long as there is a separation agreement in place g. Alimony must be paid in cash

B, C, D, G

Under the realization principle, what must occur for income to be realized? a. A taxpayer must receive cash to realize income b. A taxpayer must engage in a transaction with another party c. A measurable change in wealth must occur, regardless of whether a transaction takes place d. The transaction must result in a measurable change in property rights

B/D

Choose the types of investments that generate taxable income: a. Educational savings plan b. Corporate bonds c. Municipal bonds d. U.S. Savings Bonds e. Certificate of Deposits

B/D/E

Mary has received the following income and fringe benefits during the current year: a $73,000 salary; $600 in employer-provided disability premiums; $5,000 in workers; compensation; $1,200 in corporate bond interest; a $23,000 car won on a game show; and a $1,200 health insurance reimbursement for medical expenses paid during the year. Which of these amounts should Mary include in her gross income? a. $1,200 health insurance reimbursement b. $1,200 corporate bond interest c. $5,000 workers' compensation d. $600 disability premiums e. $73,000 salary

B/E

Imputed income examples

Bargain purchases and below-market loans.

Income from Flow-through Entities cont. (report on tax return)

Because different types of income and deductions may be treated differently for tax purposes (e.g., qualified dividends are eligible for a special low tax rate), each item the partners or shareholders report on their tax returns retains its underlying tax characteristics. That is, the partners are treated as if they personally received their share of each item of the flow-through entity's income.

During the current year, Sam received interest income from the following investments: $400 from State of Wyoming bonds, $200 from Ford Motor Co., $50 from City of Laramie bonds, $100 from U.S. Treasury bonds. How much of the interest received will be included in gross income? a. $200 b. $700 c. $300 d. $600

C The State of Wyoming and City of Laramie bonds are not taxable.

Mary has received the following income and fringe benefits during the current year: a $73000 salary, $600 premiums paid by the employer-provided disability insurance, $5000 in workers' compensation, $1200 health insurance reimbursement for medical expenses paid during the year. Which of these amounts should Mary include in her gross income? a. $5000 workers' compensation b. $600 disability premiums c. $1200 corporate bond interest d. $73000 salary e. $1200 health insurance reimbursement

C, D

What are the advantages of the realization principle for defining gross income? a. It allows the taxpayer to exclude the transaction from gross income b. It provides the taxpayer with the opportunity to shift income to a related taxpayer who is in a lower tax bracket c. It provides the taxpayer with the wherewithal to pay when cash is received in the transaction d. It provides an objective measure of the value of the transaction

C/D

Which of the following statements are CORRECT when describing "Workers' Compensation?" a. Both "worker's compensation" and "unemployment compensation" are taxable to the recipient b. Workers' compensation is another term for "unemployment compensation" c. Workers' compensation benefits are not taxable to the recipient because the payments result from a physical injury d. Workers' compensation benefits are paid to employees who have been inured in a work-related situation e. Workers' compensation benefits are taxable to the recipient because this insurance was provided tax-free by the employer

C/D

Which of the following rules must be met for a taxpayer to be able to exclude the gain on the sale of a personal residence? a. The taxpayer must NOT have used the gain exclusion provision in the five years prior to the sale b. The taxpayer may use the exclusion on a vacation home or second home if NOT used for the principal residence c. The exclusion is $500,000 for taxpayers who are married filing jointly d. The taxpayer must have owned the residence for at least two years of the five year period prior to the sale e. The taxpayer must have used the property as a personal residence for a total of two or more years during the five year period prior to the sale

C/D/E

Which of the following types of income are generated from property ownership? a. Wages earned by an electrician b. Salary earned by an accountant c. Gain from the sale of a building d. Rental income from lessees e. Dividends received on corporate stock f. Interest earned on U.S. Treasury bonds

C/D/E/F

Non-fixed annuities- expected value

Calculated as number of annual payments from the table (referred to as the expected return multiple) is multiplied by the annual payment amount.

In general, when a taxpayer cashes out a life insurance policy before death, taxable income may result. However, if the taxpayer is _________ ill, the portion of the income required for long-term care is excluded from gross income. If the taxpayer is ________ ill, the proceeds are NOT taxable.

Chronically/ Terminally

Ann and Andy live in a state where all of the income earned from the services of Ann are included only in her gross income. They live in a state with a _____ system.

Common law

Earned income

Compensation and other forms of income received for providing goods and services in the ordinary course of business.

_____ 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

alimony

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:

tax advantaged account that can be used to fund qualified educational expenses from kindergarten through 12th grade and higher education expenses such as tuition, books, fees, supplies, and reasonable room and board

Coverdell Educational Savings Account

Abby sold a parcel of land for $18,000. She paid a real estate agent a commission of $1,200 for assisting with the sale. Abby had purchased the land several years earlier for $14,500. What is the gain on the sale of the land? a. Gain of $3,500 b. Gain of $16,800 c. Gain of $18,000 d. Gain of $2,300

D

Andrew earned $5,000 in wages while working a part-time job during the current year. He also received a scholarship for $12,000. He used $9,000 for tuition and $800 for books. The remaining $2,200 went to help cover the cost of housing. During the summer Andrew's uncle died and he inherited $30,000. What is the amount of Andrew's gross income for the current year? a. $14,800 b. $35,000 c. $44,800 d. $7,200 e. $36,200 f. $17,000

D

Bobby received a $3,500 scholarship for the semester. He used $3,000 to pay tuition to the community college, and the remaining $500 was paid toward textbooks. How much of the scholarship must be included in gross income? a. $3,500 b. $500 c. $3,000 d. $0

D

Janice and Jarrod are married and live in a community property state. Janice is NOT employed outside the home, and Jarrod earns a salary of $98,000. During the year, they earned $2,000 on investments that are owned jointly. The investments were made after they were married, with money earned by Jarrod. How is the gross income treated for federal income tax purposes? a. Jarrod is deemed to have earned $99,000 and Janice is deemed to have earned $1,000 b. Jarrod is deemd to have earned $98,000 and Janice is deemed to have earned $2,000 c. Jarrod is deemd to have earned $100,000 and Janice has no income d. Jarrod is deemd to have earned $50,000 and Janice is deemed to have earned $50,000

D

Which of the following fringe benefits provided by an employer is not excluded from gross income? a. Qualified transportation expenses b. Medical insurance c. De minimis (or small) benefits d. Group life insurance coverage in excess of $50,000

D

Which of the following situations satisfies the ownership test for excluding the gain on a personal residence? a. The taxpayer must have owned the residence for the two years prior to the sale b. The taxpayer must have owned the residence for more than 12 months c. The taxpayer must have owned the residence for five consecutive years prior to the sale d. The taxpayer must have owned the residence for two or more years during the past five-year period ending on the date of sale

D

Which of the following statements is correct concerning a gift? a. A gift is included in the gross income of the person giving the gift b. A gift is included in the gross income of the person receiving the gift c. A gift may be subject to "gift tax" which is paid by the person receiving the gift d. A gift may be subject to "gift tax" which is paid by the person giving the gift

D

Which of the following statements is not correct regarding alimony for divorce decrees before 1/1/19? a. Alimony is not deductible for AGI for the person paying it b. Alimony payments must be made in cash c. Alimony is included in gross income of the person receiving it d. Alimony is another term for child support

D

Which of the following types of cash receipts is NOT taxable to the recipient? a. Lottery winnings b. Gambling winnings c. Raffle prizes d. Gift from a friend

D

In order to exclude the maximum amount of foreign-earned income form U.S. taxation, the following conditions must be met. a. The taxpayer must have lived in the country for at least 6 months in the current year b. The Taxpayer must NOT be a U.S. citizen c. The taxpayer must be an employee of the U.S. government on a temporary assignment in the foreign country d. The taxpayer must be considered a "resident" of the foreign country e. The taxpayer must have resided in the foreign country for 330 days in a consecutive 12-month period

D/E

Which of the following choices are characteristics of qualified tuition programs, also known as Section 529 plans? a. The distributions can be made for qualified education expenses from kindergarten through 12th grade b. The maximum yearly contributions to the account are limited to $2,000 for each beneficiary c. Distributions to contributors are NOT subject to income tax, but they do incur a 10% penalty d. Earnings on the account are NOT taxable if used for qualifying higher education expenses e. Distributions made to the beneficiary for purposes other than education will incur taxation and a penalty on the earnings of the plan

D/E

Rather than claiming the foreign-earned income exclusion, taxpayers may claim a foreign tax _______ or a foreign tax ________ for income taxes paid to other countries.

Deduction/ Credit

The rate at which taxpayers are taxed on gains from property dispositions and the extent to which they can deduct losses from property dispositions depends on what?

Depends on whether the taxpayer used the asset for business purposes, investment purposes, or personal purposes.

Tax treament of unearned income

Depends upon the type of income and, in some circumstances, the type of the transaction generating the income. See textbook for problems on income from property.

To provide tax relief for insolvent taxpayers:

Discharge of Indebtedness is not taxable if taxpayer is insolvent before/after debt forgiveness.

Bargain purchases general rules

Discount received on the purchase from a related party is taxable, but the tax consequences vary based on the relationship of the parties (compensation income, taxable dividend and gifts).

political

Donations to _____ organizations are not deductible for federal income tax purposes.

Second Exception to the Prizes, Awards, and Gambling Winnings rule

For employee awards for length of service or safety achievement. These nontaxable awards are limited to $400 of tangible property other than cash per employee per year. The award is not excluded from the employee's income if circumstances suggest it is disguised compensation.

375000

For mortgages obtained in 2018, homeowners with a filing status of married filing separately may deduct mortgage interest on up to _____ of acquisition indebtedness.

Below-market loans indirect economic benefit

Function of the amount of the loan and the difference in the market interest rate and the rate actually charged by the lender

community property

In a(n) system, the income earned from services by one spouse is treated as though it was earned equally by both spouses.

fringe benefits

In addition to receiving a salary from a company, many employers provide _____ that are excluded from gross income.

nontaxable

In general, life insurance proceeds are _____ (taxable/nontaxable) to the beneficiary of the policy.

physical

In personal injury cases, any damages awarded due to _____ injury are exempt from taxation.

In general, when a taxpayer's debt is discharged by a lender, the taxpayer's gross income will _____ the amount forgiven.

Include

Other types of payments that do not qualify as alimony

Include (1) property divisions (e.g., who gets the car, house) and (2) child support payments fixed by the divorce or separation agreement.

Taxpayers who realize an economic benefit must ______ the benefit in gross income unless it is specifically ______ by the tax code.

Include/ Excluded

property

Income from _____ takes different forms, such as dividends, interest, rents, royalties, and annuities.

unearned

Income from property is referred to as (earned/unearned) _____ income.

Janice and Jarrod are married and live in a community property state. Janice is not employed outside the home, and Jarrod earns a salary of $98000. During the year, they earned $2000 on investments that are owned jointly. The investments were made after they were married, with money earned by Jarrod. How is the gross income treated for federal income tax purposes?

Janice is deemed to have earned $50000 and Jarrod is deemed to have earned $50000

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

Bart sold a parcel of land for $21000. He paid a real estate agent a commission for $1500 fir assisting with the sale. Bart had purchased the land several years earlier fro $20000. What is the gain or loss on the sale of the land>

Loss of $500

8160

Mitchell and Midge are married and file a joint return. Mitchell receives $9,600 in Social Security each year. Their modified AGI is $48,000. _____ of the Social Security benefits is subject to taxation.

Income from services

Most common; rarely exempt Salary, wages, fees taxpayer earns through services in nonemployee capacity and unemployment compensation. often referred to as earned income- generated by efforts of taxpayer

Interest on _____ bonds is excluded from federal income taxation.

Municipal

Any reimbursement a taxpayer receives from a medical or accident insurance policy for medical expenses paid by the taxpayer during the current year are _____ for the taxpayer.

Nontaxable

In general, life insurance proceeds are ________ to the beneficiary of the policy.

Nontaxable

Annuity exclusion ratio

Original investment/ expected value of annuity = return of capital precentage (determines portion of each payment that's nontaxable return of capital)

In personal injury cases, any damages awarded due to _______ injury are exempt from taxation.

Physical

Income from _____ takes different forms, such as dividends, interest, rents, royalties, and annuities

Property

Income from ______ takes different forms, such as dividends, interest, rents, royalties, and annuities.

Property

Joint-life annuity

Provide payments over the lives of two people. Annual payments each year until taxpayer AND taxpayer's spouse passes away.

Loss on a dispoal sale

Realized when the proceeds are less than the tax basis in the property. Because the return of capital principle generally applies only to the extent of the sale proceeds, a loss does not necessarily reduce the taxpayer's taxable income (unless loss is deductible).

If a transfer of property between spouses does not meet the definition of alimony?

Recipient of the transfer excludes the value of the transfer from income, and the person transferring the property is not allowed to deduct the value of the property transferred.

Modified AGI

Regular AGI (excluding Social Security benefits) plus tax-exempt interest income, excluded foreign income and certain other deductions for AGI.

Formula for computing gain/loss from sale of an asset

Sales proceeds Less: Selling expenses =Amount realized Less: Basis (investment) in property sold =Gain (Loss) on sale

Property Dispositions

Taxpayers can realize a gain or loss when disposing of an asset. Consistent with the return of capital principle we discussed before, taxpayers are allowed to recover their investment in property (tax basis) before they realize any gain.

claim of right

The _____ doctrine states that income has been realized if a taxpayer receives income and there are no restrictions on the taxpayer's use of the income.

realization

The _____ principle states that income is received when a taxpayer completes a transaction with another party that results in a measurable change in the property rights of the two parties.

investment income

The deduction of investment interest is limited to a taxpayer's net _____.

529

The earnings on a section _____ plan are not taxable to the beneficiary if the distributions from the account are used to pay qualified higher education expenses.

How are the proceeds from a life insurance policy treated if the policy is cashed in early for its surrender value when there is no chronic or terminal illness present?

The excess of the cash surrender value over the premiums paid is included in the taxpayer's gross income

Andrews, Badin, and Carr formed a partnership, ABC. During Year 2, the partnership sold some land that was held for investment and generated a long-term capital gain. How will this income be reported on the partners' individual tax returns?

The income will retain its character and be reported as a long-term capital gain

Non-fixed annuities (payment over person's life)

The number of payments is uncertain. For these annuities, taxpayers must use IRS tables to determine the expected value based upon the taxpayer's life expectancy at the start of the annuity.

When is a discharge of indebtedness not included in gross income?

When the taxpayer is insolvent before and after the debt forgiveness

constructive receipt

_____ 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.

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 taxpayer's use of the income

claim of right

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

what to include

corporate bond interest, salary

Investments that are tax-advantaged when used to help fund higher education

coverdell savings account, section 529 plans, US Series EE bonds

Rather than claiming the foreign-earned income exclusion, taxpayers may claim a foregin tax ______ or a foreign tax __________ for income taxes paid to other countries

deduction; credit

In addition to receiving a salary from a company, many employers provide ____ ______ that are excluded from gross income

fringe benefits

When an individual transfers property to another taxpayer during their life, without receiving or expecting to receive value in return, the property transferred is a ____ and is not included in the ______ (income/property) by the person receiving the property

gift; nontaxable

_______ 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

Which of the following statements is correct?

if a taxpayer receives a state tax refund for a tax year where she deductd the state tax paid, she must report the refund as gross income taxpayers who exchange or trade goods or services with each other must recognize the increase in value of the goods or services as income when taxpayers sell assets, they may exclude the original cost of those assets from gross income

Imputed Income definition

income from an economic benefit taxpayer receives indirectly rather than directly. Amount of the income is based on comparable alternatives.

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

For below-market-loans, the discounted interest rate is treated as interest _______ to the lender and interest _________ to the borrower

income; expense

Form of Receipt Doctrine

indicates that taxpayers realize income whether they receive money, property, or services in a transaction

Income from Flow-through Entities

legal entities (partnerships, limited liability companies, and S corporations) that don't pay income tax. Income and losses are allocated to their owners. That is, owners report income or deductions as though they operated a portion of the business personally. Specifically, each partner or S corporation shareholder reports his or her share of the entity's income and deductions, generally in proportion to his or her ownership percentage, on his or her individual tax return.

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

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

Which of the following terms is used to refer to income from property?

unearned income

Gross income means all income from ________

whatever source derived

Return of Capital Doctrine

when receiving a payment for property, taxpayers are allowed to recover the cost of the property tax-free