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Exam 5: Gross Income and Exclusions

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Question 81

Multiple Choice

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Helen is a U.S. citizen and a CPA who moved to London, England, three years ago to work for a British company. This year, she spent the entire year in London and earned a salary of $140,400. How much of her salary will she be allowed to exclude from gross income in the United States?

A) $117,400
B) $107,600
C) $137,400
D) $130,400
E) All of her salary is included in gross income.

F) A) and C)
G) A) and B)

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Question 82

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Recognized income may be in the form of cash or property received (but not services received).

A) True
B) False

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Question 83

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Which of the following is not a necessary condition for income to be included in gross income?

Brenda has $15,000 in U.S. Series EE savings 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?

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car. If the federal interest rate was 4 percent, which of the following is correct?

Aubrey and Justin file married filing separately. This year, Aubrey earned salary of $130,000, and Justin earned salary of $88,000. Aubrey and Justin live in a common law state. How much income earned will Justin report on his tax return for this year?

Andres has received the following benefits this year. Besides these benefits Andres missed work for two months due to an illness. During his illness Andres received $6,500 in sick pay from a disability insurance policy. Assume Andres has disability insurance provided by his employer as a nontaxable fringe benefit. What amount, if any, must Andres include in gross income this year?

Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.

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, Steve. This year Steve received checks in the amount of $62,000 for Dave's plumbing services. Which of the following is a true statement?

Henry works part time on auto repairs and restoration projects. This year Henry was paid $5,400 for repairs he made to his neighbor's auto. Henry's neighbor promised to pay Henry another $2,200 in cash next year. Henry's brother borrowed $4,100 in cash in December of this year and gave him a negotiable promissory note for $4,300, due in three months with interest. Henry sold the note in January of next year for $3,500. Finally, Henry restored a car for the football coach. The coach paid him this year with a pass to next year's football games. The pass is worth $750. Compute Henry's gross income for this tax year, assuming that he uses the cash basis of accounting.

Generally, 85 percent of Social Security benefits are included in income of high-income taxpayers.

Jake sold his car for $2,400 in cash this year. He will realize a taxable gain of $1,000 if he purchased the car for $1,400.