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Exam 5: Gross Income: Exclusions

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Question 61

True/False

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Sarah's employer pays the hospitalization insurance premiums for a policy that covers all employees and their family members.Sarah can exclude from her gross income the premiums for herself and her family members.

A) True
B) False

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Question 62

Multiple Choice

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Ridge is the manager of a motel.As a condition of his employment,Ridge is required to live in a room on the premises so that he would be there in case of emergencies.Ridge considered this a fringe benefit,since he would otherwise be required to pay $800 per month rent.The room that Ridge occupied normally rented for $70 per night,or $2,100 per month.On the average,90% of the motel rooms were occupied.As a result of this rent-free use of a room,Ridge is required to include in gross income.

A) $0.
B) $800 per month.
C) $2,100 per month.
D) $1,890 ($2,100 ´ .90) .
E) None of the above.

F) A) and C)
G) None of the above

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Question 63

Multiple Choice

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Doug and Pattie received the following interest income in the current year: Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

The First Chance Casino has gambling facilities,a bar,a restaurant,and a hotel.All employees are allowed to obtain food from the restaurant at no charge during working hours.In the case of the employees who operate the gambling facilities,bar,and restaurant,60% of all of Casino's employees,the meals are provided for the convenience of the Casino.However,the hotel workers,demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work.Which of the following is correct?

Sally and Ed each own property with a fair market value less than the amount of the outstanding mortgage on the property and also less than the original cost basis.They each were able to convince the mortgage holder to reduce the principal amount on the mortgage.Sally's mortgage is on her personal residence and Ed's mortgage is on rental property he owns.

Margaret is trying to decide whether to place funds in a qualified tuition program.Her son will be attending college in 4 years.She is in the 35% marginal tax bracket and she believes she can earn an 7% before tax return on alternative investments.Thus,$10,000 will accumulate to $11,948 (after-tax)in 4 years.Margaret expects tuition to increase at the rate of 5% each year to $12,155 in 4 years.Her son will be in the 15% marginal tax bracket in all relevant years.Given these assumptions,should Margaret participate in the qualified tuition program?

The taxpayer's marginal tax bracket is 25%.Which would the taxpayer prefer?

Tonya is a cash basis taxpayer.In 2011,she paid state income taxes of $6,000.In early 2012,she filed her 2011 state income tax return and received a $600 refund.

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime,approximately 25 days each year.The supper money received:

The taxpayer is a Ph.D.student in accounting at City University.The student is paid $1,500 per month for teaching two classes.The total amount received for the year is $13,500.

Carin,a widow,elected to receive the proceeds of a $150,000 life insurance policy on the life of her deceased husband in 10 installments of $17,500 each.Her husband had paid premiums of $60,000 on the policy.In the first year,Carin collected $17,500 from the insurance company.She must include in gross income:

Meg's employer carries insurance on its employees that will pay an employee his or her regular salary while the employee is away from work due to illness.The premiums for Meg's coverage were $1,200.Meg was absent from work for two months as a result of a kidney infection.Meg's employer's insurance company paid Meg's regular salary of $8,000 while she was away from work.Meg also collected $2,000 on a wage continuation policy she had purchased.Meg is not taxed on any of the above amounts.

Workers' compensation benefits are included in gross income because the payments replace wages the individual would have otherwise received.

Matilda works for a company with 1,000 employees.The company has a hospitalization insurance plan that covers all employees.However,the employee must pay the first $3,000 of his or her medical expenses each year.Each year,the employer contributes $1,500 to each employee's health savings account (HSA) .Matilda's employer made the contributions in 2010 and 2011,and the account earned $100 interest in 2011.At the end of 2011,Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy.As a result,Matilda must include in her 2011 gross income:

What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)

A U.S.citizen who works in France from February 1,2010 until January 31,2011 is not eligible for the foreign earned income exclusion in 2010 but is eligible for it in 2011.