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Exam 5: Gross Income and Exclusions

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Question 71

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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, if any, should Opal include in her gross income if last year her total itemized deductions exceeded the standard deduction by $350?

A) $2,050
B) $350
C) $180
D) $170
E) None of the above - refunds of state income taxes are not included in gross incomE.Refund amounts are included in gross income only to the extent that the original deduction provided a tax benefit.The $2,400 of deduction produced a tax benefit of $350 so the entire $170 is included in income.

F) C) and E)
G) D) and E)

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Question 72

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A taxpayer generally includes in gross income the amount of debt forgiven by a lender.

A) True
B) False

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Question 73

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When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.

This year Larry received the first payment from an annuity that promises to pay him $3,000 per month for the rest of his life. The IRS tables indicate that given Larry's age, he should expect to receive 310 monthly payments. The cost of the annuity to Larry was $620,000. How much of the first $3,000 payment should Larry include in gross income?

Kathryn is employed by Acme and they have been very pleased with her performance this year. In December Kathryn was granted an extra week off with pay (pay for the week totaled $2,000). In addition, Kathryn was given tickets to a football bowl game worth $800 (Kathryn didn't use the tickets - she hates football). Just right before year-end Kathryn was allowed to order new office furniture and Acme told her to take the old office furniture home. The office furniture was originally purchased for $7,000, but it was fully depreciated and only worth about $1,000. Determine the amount Kathryn should include in her gross income.

Hillary is a cash-basis calendar-year taxpayer. During the last week of December she received a letter containing a $5,000 check for services rendered. Which of the following is a true statement?

Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes).

Juan works as a landscaper for local businesses on weekends, and he often provides services in exchange for property. This year Juan provided lawn-mowing services in exchange for $1,275 of car repair services, $3,570 of groceries, and a certificate of deposit (C.D.) for $4,050. The C.D.matures next year with interest.Finally, Juan received a gift card that can only be applied for $850 of clothing at a local mall.Juan has only applied the gift card to purchase $100 of clothing.Compute Juan's gross income assuming that he uses the cash basis of accounting.

Brenda has $15,000 in U.S. Series EE saving bonds and she is considering whether to cash in the bonds. Under what conditions can Brenda exclude the interest on the savings bonds from her gross income?

The tax law defines alimony to include transfers of property (but not cash) between former spouses.