tax chapter 5

gross income includes a) all income from whatever source derived unless excluded by aw b) excluded income c) deferred income d) all realized income

a) all income from whatever source derived unless excluded by law

oprah is cash basis taxpayer employed in publishing industry. this year her employer informed her that because of her outstanding performance she is entitled to a free world cruise. identify the prickle that will determine whether her parents were taxed on the value of cruise tickets. a) assignment of income b) constructive receipt c) return of capital principle d) wherewithal to pay e) all of these

a) assignment of income

dave is a plumber who uses the cash method of accounting. this year dave requested that his clients make their checks payable to his son, steven. this year, steve received checks in the amount of $62,000 for dave's plumbing services. which is true? a) dave is taxed on $62,000 plumbing income this year b) steve " c) steve is taxed on $62,000 of income form gifts received this year

a) dave is taxed on $62,000 of plumbing income this year

wilma has a 25,000 CD at the local bank. the interest on this certificate was 1,000 was credited to her account this year but she must pay an early withdrawal penalty if she cashes the CD before net year. which is true? a) wilma must include the 1,000 of interest in her income this year. b) wilma must include the 1000 of interest in her income hone she cashes she CD. c) wilma must include the 1000 of interest in her income this year only if the bank waives the early withdrawal penalty

a) wilma must include the 1000 of interest in her income this year

this year mary received a 200 refund of state income taxes that she deducted on her tax return last year. mary included a total of 4000 of state income taxes when she itemized deductions last year. what amount of refund should mary include in her gross income this year? a) 200 is included bc mary itemized her deductions last year b) 200 is included if itemized deductions exceeded the standard deduction by 200 c) 200 is included because itemized deductions exceeded the standard deduction

b) 200 is included if itemized deductions exceeded the standard deduction of 200

which of the following is true about the first payment received from a purchased annuity? a) the payment is included in gross income b) a portion of the payment is a return of capital c) the payment can only be taxed in the year after the annuity was purchased d) the payment is not taxed until the annuity payments cease altogether.

b) a portion of the payment is a return of capital

emily is a cash basis taxpayer, and she was an especially productive salesperson last year. December of last year her supervisor told emily that she had earned a 5,000 bonus. however, emily received the bonus check after year end. identify the principle that will determine when emily is taxed on the bonus: a) assignment of income b) constructive receipt c) return of capital principle d) wherewithal to pay e) all of these

b) constructive receipt

harold receives a life annuity from his qualified pension that pays him 5000 per year for as long as he lives. later this year harold will recover the remainder of his cost of the annuity. which of the following correctly describes how the annuity payments are taxed after harold has recovered the cost of annuity? a) harold will continue to apply the annuity extension b) harold will include the entire amount of each annuity payment in gross income c) the entire amount of each annuity payment is excluded

b) harold wil include the entire amount of each annuity payment in gross income

which of the following is not a necessary condition for income to be included in gross income? a) income must be realized b) income must be paid in cash c) income cannot be excluded by law d) income must be made available to a taxpayer on the cash basis

b) income must be paid in cash

nate is a partner in a partnership that received 5000 of interest income this year. nates share of the interest is 1000, and he should report this income on his individual return as: a) business income b) income from a parternship c) interest income d) divided income because the partnership intends to organize next years

c) interest income

identify the rule dictating that on a sale of an asset a taxpayer needs only include the incremental gain in gross income rather than the entire proceeds from the sale: a) tax benefit rule b) constructive receipt c) return of capital principle d) wherewithal to pay e) none

c) return on capital principle

sally is a cash basis taxpayer and a member of the valley barer club. this year sally provided 100 hours of sewing services to the barter club in exchange for two football playoff tickets. which is true? a) sally need not recognize any gross income unless she sells the football tickets b) sally's exchange does not result in taxable income c) sally is taxed on the value of the football tickets even if she cannot attend the game d) sally is taxed on the value of her sewing services only if she is a professional seamstress

c) sally is taxed on the value of the football tickets even if she cannot attend the game

which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period? a) expected return is divided by the number of payments b) the original investment is divided by the prevailing interest rates c) the original investment is divided by the number of payments d) the expected return is divided by the prevailing interest rate

c) the original investment is divided by the prevailing interest rate

hilary is a cash basis calendar year taxpayer. during the last year of December she received a letter containing a $5,000 check for services. which is true? a) hilary is taxed on the $5000 of service income the year she cashes the check b) " the year the check was mailed c) " the year she receives the check d) " the year she provides the service

c) the year she receives the check

opal deducted 2,400 of state income taxes on her tax return last year. this year she received a state income tax refund of 170. what amount of the refund, should she include in her gross income if last year her total itemized deductions exceeded the standard deduction by 350? a) 2050 b) 350 c) 180 d) 170

d) 170

jack and jill are married. this year jacked earned 72,000 and jill earned 80,000 and they received $4,000 of interest income from a joint savings account. how much gross income would jack report if he files married separate from jill? a) 72,000 if they reside in the common law state b) 76,000 if they reside in a community property state law c) 84,000 if they reside in a common law state d) 78,000 if they reside in a community property law state

d) 78,000 if they reside in a community property law state

to calculate a gain or loss on the sale of an asset, the proceeds from the sale are reduced by which of the following? a) tax basis of the property b) selling expenses c) amount realized d) tax basis of the property and selling expenses

d) tax basis of the property and selling expenses

identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year. a) tax refund rule b) constructive receipt c) return on capital principle d) tax benefit rule e) none of these

d) tax benefit rule

this year henry realized a gain on the sale of an antique car that he inherited form his uncle. the buyer has promised to pay henry in installment payments over the next few years. identify the principle: a) assignment of income b) constructive receipt c) return of capital principle d) wherewithal to pay

d) wherewithal to pay

kevin provided services to several clients this year who paid with different types of property. which of the following payments is not included in kevin's gross income? a) cash b) shares of stock listed on the NYSE. c) a used car d) gold coins e) all are included in gross income

e) all are included in gross income

identify which of the items below help determine which taxpayer must recognize earned income: a) residence in a community property law state b) assignent of income c) residence in a common law state d) residence in a community property law state and assignment of income e) all of these

e) all of these

this year, barney purchased 500 shares of bell common stock for $20 per share. at year end, the bell shares were only worth $2 per share. what amount can barney deduct as a loss this year? a) $10,000 b) $9,000 c) $1,000 d) barney can deduct $10,000 only if he includes $1,000 in his taxable income e) none of these-barney is not entitled to a loss deduction

e) none of these

fran purchased an annuity that provides $12,000 quarterly payments for the next 10 years. the annuity was purchased at a cost of $300,000. how much of the first quarterly payment will she include in her gross income? a) 7500 b) 4500 c) 12000 d) 32,400

(300,000 / (40*10)) = 7500 12,000 - 7500 = 4500 so B

george purchased a life annuity for 3,200 that will provide him 80 monthly payments for as long as he lives. based on the IRS tables, george's life expectancy is 100 months. how much of the first $80 payment will george include in his gross income? a) 80 b) 72 c) 48 d) 32

(3200 / 100 ) = $32, so $80-32 = $48 so C