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Nancy, who is 59 years old, is the beneficiary of a $215,000 life insurance policy.
What amount of the insurance proceeds is taxable under each of the following scenarios?
(Do not round any intermediate division. Round your final answer to the nearest whole dollar amount.)
 
She receives the $215,000 proceeds as a lump-sum payment.
She receives the proceeds at the rate of $4,225 a month for five years.
She receives the proceeds in monthly payments of $1,330 over her remaining life expectancy (assume she will live 25 years).
Use the information from (c).
If Nancy lives beyond her 25-year life expectancy, what amount of each monthly payment will be taxable in the 26^th year?
 
Each of the following taxpayers received a state income tax refund in 2017.
In all cases, the taxpayer has a filing status of married filing jointly.
The standard deduction in 2016 was $12,600.
What amount of the refund is properly included in 2017 income?
Refund of $748; taxpayer did not itemize deductions in 2016.
Refund of $686; taxpayer had $13,505 of itemized deductions in 2016.
Refund of $984; taxpayer had itemized deductions of $13,190 in 2016.
 
 
Determine the amount of tax liability in the following situations.
In all cases, the taxpayer is using the filing status of married filing jointly.
Use the appropriate Tax Tables or Tax Rate Schedules.
 
Taxable income of $64,537 that includes a qualified dividend of $660.
Taxable income of $17,653 that includes a qualified dividend of $361.
Taxable income of $144,800 that includes a qualified dividend of $4,400.
(Round your intermediate computations to 2 decimal places and final answer to the nearest whole dollar amount.)
Taxable income of $44,698 that includes a qualified dividend of $1,276.
Taxable income of $296,086 that includes a qualified dividend of $16,075.
(Round your intermediate computations to 2 decimal places and final answer to the nearest whole dollar amount.)
(Use the Tax Tables for taxpayers with taxable income under $100,000 and the Tax Rate Schedules for those with
taxable income above $100,000.)
 

   
Carl and Karina file a joint return.
Karina earned a salary of $39,000 and received dividends of $3,080, taxable interest income of
$2,040, and nontaxable interest of $1,020. Carl received $9,160 of social security benefits and a gift
of $6,040 from his brother.
What amount of social security benefits is taxable to Carl and Karina?
 

 
   
In 2012, Marie borrowed $9,500. In 2017, the debt was forgiven. Marie does not believe she should report
the forgiveness of debt as income because she received nothing at the time the debt was forgiven in 2017.
What amount of income should Marie record in her tax return in relation to debt forgone?

   
Determine the amount of taxable income that should be reported by a cash-basis taxpayer
in 2017 in each of the following independent cases:

a. A taxpayer completes $500 of accounting services in December 2017 for a client who pays
for the accounting work in January 2018.


$500 taxable in 2018, not or $0 in 2017
 
b. A taxpayer is in the business of renting computers on a short-term basis. On December 1, 2017,
she rents a computer for a $200 rental fee and receives a $500 deposit. The customer returns
the computer and is refunded the deposit on December 20, 2017.

$200 (deposit doesn't count unless right to keep it)
 
c. Same facts as (b) except that the computer is returned on January 5, 2018.


$200 (deposit doesn't count unless right to keep it)
 
d. On December 18, 2017, a landlord rents an apartment for $700 per month and collects the
first and last months' rent up front. It is customary that tenants apply the security deposit to
their last month's rent upon moving out.


$1,400 ($700 for 2 months)
 
e. An accountant agrees to perform $500 of tax services for an auto mechanic who has agreed to
perform repairs on the car of the accountant's wife. The mechanic repairs the car in December
2017 and the accountant starts and completes the tax work in March 2018.
 
The accountants records $500 in 2017, but the mechanic records $500 in 2018
   
Sam owns all of the stock in a newly formed corporation.
During 2017, the first year of operation, the corporation realized current earnings and profits of $10,000.
Sam received a $12,000 distribution from the corporation.
How much, if any, of the distribution is taxable to Sam? Why?
 
Sam will have a taxable dividend of $10,000 and a nontaxable return of capital of $2,000
   
When an individual's marginal ordinary income tax rate is 25%, the tax rate on qualified dividends is
 
15%
   
Are there circumstances in which income is recognized even when a cash basis
taxpayer does not receive cash? Explain.
 
Yes ; property, services, debt relief
 
Dean is single and has AGI of $85,000. He redeems $5,000 (principal of $3,500 and interest of
$1,500) of Series I savings bonds to pay qualified higher education expenses of $2,000.
How much interest (if any) can Dean exclude from income?
 
$528
   
Dean is single and has AGI of $50,000. He redeems $5,000 (principal of $3,500 and interest of $1,500)
of Series I savings bonds to pay qualified higher education expenses of $2,000.
How much taxable income (if any) must Dean report?
 
$900
   
Graciela, who is single, reported itemized deductions of $6,400 on her 2016 tax return. Her
itemized deductions included $200 of state taxes paid. In 2017, she received a $150 refund of
state taxes paid in 2016. What is the amount that Graciela needs to report on her 2017 tax return?
Use the Internet (www.irs.gov) to find out how much the standard deduction was for 2016.
 
refund = 150
deductions = 200
Itemized compared to standard = $100
   
Each of the following taxpayers received a state income tax refund in 2017. In all cases, the taxpayer
has a filing status of married filing jointly. What amount of the refund is properly included in 2017 income?


a. Refund of $729; taxpayer did not itemize deductions in 2016.
b. Refund of $591; taxpayer had $13,220 of itemized deductions in 2016.
c. Refund of $927; taxpayer had itemized deductions of $13,000 in 2016.
 
a. $0 (Itemized vs standard
b. $591
c. $400 use 2016 deductions
   
What is meant by the concept of constructive receipt?
Income is available or in control of the taxpayer; Is taxable.
(cash receipt method). ex: investment accounts & gains, savings acct interest, holding a check
   
Bruce is single and had itemized deductions of $20,000 on his 2021 tax return.
He included $2,000 of state taxes in his itemized deductions. In 2022, he received a $200 refund
of state taxes paid in 2021. How much of the refund (if any) should Bruce include in his taxable
income for the current year (2022)?
 
$200
   
Dean is single and has AGI of $50,000. He redeems $5,000 (principal of $3,500 and interest of $1,500)
of Series I savings bonds to pay qualified higher education expenses of $2,000.
How much taxable income (if any) must Dean report?
 
$900
 
1,500 x (2,000 / 5,000) = 600
1,500 - 600 = 900.
   
An example of nontaxable income is
 
Child support payment.
   
Holly is entitled to receive $1,000,000 upon John's death, but rather than take a lump sum
payment, she agreed to take $10,000 a month for 10 years.
Holly will report $ of interest income per year.
 
20,000
   
Items that must be reported on line 21 (other income) of Form 1040 include
 
Jury duty pay
   
Under what circumstances is a dividend nontaxable to a shareholder recipient?
 
If dividends are > Earnings & profits
If dividends are qualified and the marginal rate < 25%
If it’s an ordinary, stock dividend
   
Congress has chosen to exempt certain income from taxation, such as scholarships,
gifts, life insurance proceeds, municipal bond interest, and employee fringe benefits.
Given that one of the primary purposes of the IRC is to raise revenue for the government,
why do you think Congress would provide these and other exemptions?
 
To courage or discourage certain actions from taxpayers
So reporting isn't too tedious or difficult
   
Frank, who is single, received $7,000 of social security benefits. His AGI before the social security benefits was $15,000.
He also had $100 of tax-exempt interest. What is the amount of taxable social security benefits?
 
$0.
   
Arnie is single and receives Social Security benefits. His AGI is $27,000 (includes half of the social security)
and his Social Security benefits are $7,200 per year. $ of his Social Security benefits are taxable.
 
1000
   
When an individual's marginal ordinary income tax rate is 25%, the tax rate on qualified dividends is
 
15%.
   
Provisional income is calculated by starting with Adjusted Gross Income (AGI) before social security
benefits and adding back specific items.
One of these items is
 
Employer-provided adoption benefits.
   
Income may be realized in the form of
 
Money, services or property.
   
When filing their tax returns, almost all individuals use
 
The cash receipts and disbursements method.
   
Andrew invested in a U.S. Treasury bond. He paid $500 for the initial investment one year ago.
The redemption value of the bond increased by $25 in the current year.
Which of the following options is not acceptable for reporting the income?
 
Andrew may request to receive the $25 in cash in the current year
He would have the wherewithal to pay the tax.
   
Up to 85% of benefits, in retirement, may be taxable for taxpayers with moderate to high taxable income.
 
social security
   
Interest on bonds is excluded from federal income taxation.
 
state
   
The basis of the property received as a dividend by a shareholder of a corporation is
 
The fair market value at the date of distribution.
   
Gross income means all income from _______ _________ __________
 
Whatever; source; derived
   
When a taxpayer includes an economic benefit in gross income, he is said to have _____________ the income.
 
recognized
   
When filing their tax returns, almost all individuals use
 
The cash receipts and disbursements method.
   
The basis of the property received as a dividend by a shareholder of a corporation is
 
The fair market value at the date of distribution.
   
Accountants recognize revenue when it is both realized and
 
Earned.
   
For tax purposes, one of the requirements to recognize income is that
 
There must be an economic benefit.
 
The highest percentage of Social Security benefits that may be taxed is %, and only for moderate to high income taxpayers.
 
85
   
Mitchell and Midge are married and file a joint return. Mitchell receives $9,600 in Social Security each year.
Their AGI is $48,000 (includes half of the social security). $ of the Social Security benefits is subject to taxation.
 
8,160
   
Which of the following represents economic benefits to a taxpayer?
 
Interest income on investments
Cash received for completing a job
A computer received in exchange for services rendered
   
Sam traded a parcel of land for a tractor and a car. He had purchased the land five years earlier
for $16,000. The market value of the car and tractor is $20,000.
What is the amount of gross income resulting from this transaction?
 
$4,000
   
Under the cash method, taxpayers recognize income in the period they earn it, rather than when they actually receive it.
 
False
   
Bobby received a $3,500 scholarship for the semester. He used $3,000 to pay tuition to the
community college, and the remaining $500 was paid toward textbooks.
How much of the scholarship must be included in gross income?
 
$0
   
Gross income only includes income received in cash because cash is a measurable change in wealth.
 
False
 
Brenda received a $15,000 college scholarship for the current year.
 
She used the scholarship to pay the following fees:
tuition             $9,000
lab fees            $60
parking fees    $120
books               $750
housing           $4,000
meal plan        $1,070
 
What can she exclude from gross income?
 
$750 books
$60 lab fees
$9,000 tuition