Exam 3: Determining Gross Income

Property settlement as part of divorce proceedings

Why do tax accounting principles differ from GAAP?

Tighe won a new automobile from his employer for being the top salesperson in the entire firm. The auto cost the employer only $34,000 because he purchased a fleet of cars from the dealer; it had a retail price of $37,000. In addition, Tighe's employer gave him $5,000 with which to pay the taxes on the prize. How much must Tighe include in his gross income?

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

What is the tax benefit rule? Provide an example of its application.

To whom do the doctrines of constructive receipt and claim of right apply?

Which of the following is not included in income?

Which of the following are included in gross income?

Tomohiro Corporation loans $50,000 interest-free for one year to Matt, a shareholder. Matt uses the loan to pay for personal debts. Assume that the applicable federal rate is 4 percent. What are the tax consequences of this loan to Tomohiro and to Matt?

John and Ethel, a married couple, receive $21,000 in Social Security benefits in 2018. They also receive $82,000 in taxable pension payments and $6,000 in municipal bond interest. What is their adjusted gross income for 2018?

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. -$100 found in a vacant lot

Beginning in 2018, the cash method may be used by all taxpayers whose average annual gross receipts for the three prior years do not exceed $25 million.

Joseph's employer pays 70% of the premiums for a disability insurance policy and Joseph pays for the other 30%. The policy pays Joseph 60% of his normal salary in the event he is injured and cannot return to work for an extended period. Joseph was injured in an accident and was unable to work for several months. During the current year, Joseph collected $75,000 under his disability policy. How much does Joseph include in his gross income?

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

Which of the following statements explain permanent differences between tax and financial accounting? i. Income is recognized in one period for tax and in another period for financial accounting Ii) Income is recognized for accounting but not for tax purposes. Iii) Expenses not deductible for tax purposes are deductible for financial accounting. Iv) An expense is deducted currently for tax but in a later period for financial accounting.

Howard can invest $50,000 in land that is expected to increase in value by 8 percent per year. Alternatively he could invest in corporate bonds paying 8 percent interest, with interest reinvested at 8 percent. Howard's capital gains tax rate is 15 percent and his marginal tax rate is 24 percent. Which investment should Howard make and what is the advantage of this alternative over the other investment if he plans to sell the land in five years.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Loan forgiven by father

All of the following result in nontaxable income except:

Ben became disabled at the end of last year. In January of the current year, he began to receive $1,500 per month disability payments from a policy that he held through his employer. His employer paid $25 of the monthly premium for the policy and Ben paid $50. How much must Ben include in income in the current year for the disability payments?