Exam 3: Determining Gross Income

Brandon and Jessica, a married couple, receive $21,000 in Social Security benefits in the current year. They receive $88,000 in taxable pension payments and $6,000 in municipal bond interest income. How much of their Social Security benefits are included in gross income?

When a taxpayer has a tax year of less than 12 months, the taxpayer must always annualize income.

Wilma divorced Barney prior to January 1, 2019. This year she received the title to their boat that cost $45,000 and is now worth $55,000. Barney paid Wilma $1,500 per month, $500 for alimony and $1,000 for support of their two children. Wilma owed $60,000 to the bank for a loan on a failed business. To satisfy the debt, she transferred title of the boat to the bank and paid an additional $5,000. What are the tax consequences of these transactions for Barney and Wilma?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Bigtown Advertising Agency, a calendar-year, accrual basis taxpayer, was paid $60,000 for a three-year advertising contract on July 1, 2017, and $36,000 for a 12-month contract on December 1, 2017 How much income must Bigtown recognize for these contracts in years 2017 and 2018, respectively?

Kimberly gave 100 shares of stock to her 24-year-old son, Brandon. Kimberly purchased the stock 9 months ago for $10 per share. On the gift date, the stock was worth $40 per share. Two months later, Brandon sells the 100 shares of stock for $60 per share. Kimberly and Brandon are in the 24 percent and 10 percent marginal tax brackets, respectively. How much family tax savings is achieved through this transaction?

When a corporation lends money to an employee at below-market interest rates, the imputed interest is additional compensation to the employee.

What types of government transfer payments are excluded from gross income?

In 1992, when Sherry was 56 years old with an additional life expectancy of 20 years, she purchased a single life annuity for $200,000 that was to pay her $15,000 per year for life starting in 1995. Sherry just received her $15,000 payment for 2018. How much of the $15,000 must Sherry include in income?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -All of the following are allowable tax years except: A. The last Friday of July B). December 31 C). The Sunday closest to March 1 D). August 31

Explain the difference in tax treatment of child support and alimony.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Dividend to a U.S. corporation from a 10% owned foreign corporation in 2018.

Which of the following is not included in income?

Carol attends State U. and received a $10,000 scholarship for her senior year that began in September, year 1. Up to the time of her graduation in May, year 2, Carol had paid the following expenses for the two semesters: 1^st semester: $3,000 tuition; $1,550 room and board in a dormitory; $400 for books and fees. 2^nd semester: $3,000 tuition; $1,700 living expenses in an apartment; $250 for books and fees. She used the remaining money from the scholarship to purchase clothes for job hunting in April, year 2. Does Carol have any income as a result of the scholarship? If yes, how much is her income and in what years would it be included in income?

Meg was the beneficiary of a $50,000 life insurance policy when her father died at the end of last year. The insurance company gives her the option of taking the $50,000 as a lump sum immediately or receiving an annuity of $8,000 per year for 12 years beginning in 2018. Meg takes the annuity option. What amount must Meg include in her income in 2018?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Lottery winnings

Geraldine worked in the produce section of a grocery store. She slipped on the wet floor, shattering her leg in several places, and was unable to work for four months. During that time she received $7,400 in disability insurance from a policy for which she and her employer each paid half of the premium. How much mush Geraldine include in income from these payments?

How is the return of capital principle related to basis?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Carbon Corporation had a $2,000,000 contract to build a small hospital with total costs estimated at $1,600,000. It received the following payments and incurred the following expenses over the three-year contract period: Year Payments Expenses 1 $ 400,000 $300,000 2 $1,200,000 $900,000 3 $ 400,000 $550,000 Under the percentage-of-completion method, how much profit (loss) should Carbon recognize in year 3?

Chloe owns 200 shares of TPP stock that she purchased 10 years ago for $1,500. Five years ago, there was a 3 for 2 stock split and she received 100 additional shares. This year, there was another 3 for 2 stock split and she received 150 additional shares. If the stock is currently selling for $10 per share, how much income does she recognize and what is her basis in these last 150 shares?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Property settlement as part of divorce proceedings