Question 1

Lily had the following income and losses during the current year: $$\begin{array} { | l | r | } 
\hline \text { Salary } & \$ 75,000 \
\hline \text { Prize from quiz show } & 25,000 \
\hline \text { Unemployment compensation } & 8,000 \
\hline \text { Embezzled funds } & 30,000 \
\hline \text { Share of partnership income } & 35,000 \
\hline
\end{array}$$ What is Lily's adjusted gross income?

Accepted Answer

Lily's adjusted gross income includes all taxable income: Salary ($75,000) + Prize ($25,000) + Unemployment compensation ($8,000) + Embezzled funds ($30,000) + Partnership income ($35,000) = $173,000.

Question 2

Tara is a taxpayer in the top tax bracket.She has a five-year-old daughter named Jane.Tara owns a small rental property.Tara has written into the lease that the monthly rent checks should be made payable to Jane.The checks are deposited into Jane's bank account.Jane enjoys the benefits of the rental income,and she will recognize the rental income on her tax return.

Accepted Answer

This arrangement is unlikely to be considered legitimate by the IRS as it appears to be a scheme to avoid paying taxes. The rental income should be reported on Tara's tax return, not her daughter's.

Question 3

During 2018,Mark's employer withheld $2,000 from his wages for state income tax.Mark claimed the $2,000 as an itemized deduction on his 2018 federal income tax return.His total itemized deductions for 2018 were $15,000 (the 2018 standard deduction was $12,000).Mark's taxable income for 2018 was a negative $25,000 due to substantial business losses.Mark received the $2,000 as a refund from the state during 2019.What amount must Mark include in income in 2019?

Accepted Answer

Since Mark's taxable income was negative in 2018, he did not receive a tax benefit from the state tax deduction. Therefore, the refund is not taxable in 2019.

Question 4

Reva is a single taxpayer with a taxable pension of $24,000,tax-exempt interest of $8,000,and Social Security benefits of $10,000.What is the amount of her taxable Social Security benefits?

Accepted Answer

To determine the amount of taxable Social Security benefits for a single taxpayer, you need to complete the following calculation:

1. Add half of the Social Security benefits to all taxable income (taxable pension and tax-exempt interest):
($10,000/2) + $24,000 + $8,000 = $32,000

2. Compare the result from step 1 to the base amount of $25,000 for single taxpayers:
$32,000 - $25,000 = $7,000

3. Take the smaller of the two amounts from step 1 and step 2:
$7,000 is smaller than half of the Social Security benefits ($10,000/2 = $5,000).

Therefore, the amount of taxable Social Security benefits for Reva is $7,050 (rounded to the nearest dollar). The correct answer is C.

Question 5

While using a metal detector at the beach during spring break,Toni uncovered some rare coins with a current fair market value of $9,000.What are her tax consequences regarding this find?

Accepted Answer

According to the IRS, if you find and keep property that does not belong to you and that has been lost or abandoned (including by simply discovering treasure on public property, such as a beach), it is not excluded from your income and must be reported on your tax return. Therefore, Toni must report the entire fair market value of the coins as income.

Question 6

Lori had the following income and losses during the current year: $$\begin{array} {| l | r | } 
\hline \text { Wages } & \$ 22,000 \
\hline \text { Share of partnership income } & 18,000 \
\hline \text { Unemployment compensation } & 12,000 \
\hline \text { Gambling winnings } & 2,000 \
\hline \text { Gambling losses } & ( 5,000 ) \
\hline \text { Prize won from a charity raffle } & 30,000 \
\hline
\end{array}$$ What is Lori's adjusted gross income?

Accepted Answer

The answer of Lori had the following income and losses...

Question 7

Homer Corporation's office building was destroyed by fire.Homer collected insurance of $250,000,which equaled the building's basis,and $150,000 for profits lost during the time the company was rebuilding the office building.What is the amount taxable this year?

Accepted Answer

The insurance proceeds received for profits lost during the time the company was rebuilding the office building are considered taxable income. Therefore, the amount taxable this year is $150,000. The insurance proceeds received for the building's basis do not count as taxable income because they only cover the cost of the asset that was destroyed.

Question 8

Mr.and Mrs.Tsayong are both over 66 years of age and are filing a joint return.Their income this year consisted of the following: $$\begin{array} { | l | r | } 
\hline \text { Taxable interest income } & \$ 10,000 \
\hline \text { Taxable pension } & 16,000 \
\hline \text { Total Social Security benefits } & 20,000 \
\hline \text { Tax-exempt interest } & 5,000 \
\hline
\end{array}$$ They did not have any adjustments to income.What amount of Mr.and Mrs.Tsayong's Social Security benefits is taxable this year?

Accepted Answer

To determine the taxable portion of Social Security benefits, calculate the provisional income: $10,000 (taxable interest) + $16,000 (pension) + $10,000 (half of Social Security benefits) + $5,000 (tax-exempt interest) = $41,000. For joint filers over 66, the base amount is $32,000. Since $41,000 exceeds $32,000 but is less than $44,000, 50% of the excess over $32,000 is taxable: 0.5 * ($41,000 - $32,000) = $4,500.

Question 9

In addition to Social Security benefits of $8,000,Mr.and Mrs.Wells have adjusted gross income of $32,000 and tax-exempt interest of $1,000.They will file a joint return.The taxable portion of their Social Security benefits will be

Accepted Answer

To determine the taxable amount of Social Security benefits, you need to calculate the couple's provisional income, which is their adjusted gross income plus any tax-exempt interest and half of their Social Security benefits.

In this case, the provisional income is: 
$32,000 + $1,000 + ($8,000/2) = $39,000

Since their provisional income is between $32,000 and $44,000 (for married filing jointly), up to 50% of their Social Security benefits are taxable.

50% of $8,000 = $4,000

However, Social Security benefits first offset any deductions or exemptions the taxpayers may have. In this scenario, the couple's standard deduction for married filing jointly is $24,800.

So, their taxable income is: 
$32,000 + $1,000 - $4,000 - $24,800 = $4,200

Therefore, the taxable portion of their Social Security benefits is $2,500.

Question 10

During 2018,Christiana's employer withheld $1,500 from her wages for state income taxes.She claimed the $1,500 as an itemized deduction on her 2018 federal income tax return which included $14,000 of itemized deductions (the 2018 standard deduction was $12,000).Christiana is single.On her 2018 state income tax return,her state income tax was $900.As a result,Christiana received a $600 refund in 2019.What amount must Christiana include in income in 2019?

Accepted Answer

Christiana must include the $600 refund as income in 2019, but she does not need to include the $1,500 withheld from her wages since she already claimed it as an itemized deduction on her federal income tax return.

Question 11

Betty is a single retiree who receives Social Security benefits of $12,000,tax-exempt interest of $4,000 and a taxable pension.Determine the amount of taxable Social Security benefits assuming her annual pension is
a.$10,000.
b.$20,000.
c.$50,000.

Accepted Answer

The answer of Betty is a single retiree who receives...

Question 12

Jan purchased an antique desk at auction.For two years,the desk sat in Jan's garage until she decided to restore it.This year,while cleaning and restoring the desk,Jan discovered $1,500 in a hidden compartment inside one drawer.With respect to the $1,500,Jan must

Accepted Answer

Jan must report the $1,500 on this year's tax return as it is considered taxable income. The fact that it was found in a hidden compartment does not exempt it from being reported.

Question 13

An electrician completes a rewiring job and is paid $1,000 by the customer in November.The customer has a small fire in his house and sues the electrician for the repayment of the $1,000 fee plus damages in December.The electrician reaches a settlement with the customer in the following February and refunds the $1,000 fee.How should the electrician treat these events when he files his tax return in April?

Accepted Answer

The electrician should report the income of $1,000 as received in the year of receipt, which is November. Then, in the year of repayment, which is February of the following year, the electrician should claim a tax deduction for the $1,000 refund. This is the correct method of reporting income and expenses when they occur in separate tax years.

Question 14

A taxpayer had the following income and losses in the current year: $$\begin{array} { | l | r| } 
\hline \text { Salary } & \$ 55,000 \
\hline \text { Sold AT\&T stock at a loss } & ( 5,000 ) \
\hline \text { Lottery prize } & 4,500 \
\hline \text { Gambling winnings } & 8,000 \
\hline \text { Gambling losses } & ( 5,000 ) \
\hline
\end{array}$$ What is the taxpayer's adjusted gross income?

Accepted Answer

The answer of A taxpayer had the following income and...

Question 15

Jeannie,a single taxpayer,retired during the year,to take over the management of some rental property.She had the following items of income and expense:
Salary prior to retirement date $34,000
Dividends from domestic corporation 4,000
Interest from City of Los Angeles bonds 5,000
Annuity (60% exclusion ratio)12,000
Share of partnership income 14,000
Partnership distribution 10,000
Rent income 17,000
Rent expenses 9,000
What is Jeannie's adjusted gross income for the year?

Accepted Answer

The answer of Jeannie,a single taxpayer,retired during the year,to take...

Question 16

Sheryl is a single taxpayer with a taxable pension of $200,000,taxable interest and dividends of $600,000,capital gains of $400,000 and Social Security benefits of $30,000.What is the amount of her taxable Social Security benefits?

Accepted Answer

To calculate the taxable amount of Social Security benefits for a single taxpayer, you need to add half of the Social Security benefits to all other sources of income. In this case, half of Sheryl's Social Security benefits ($15,000) plus her taxable pension ($200,000), taxable interest and dividends ($600,000), and capital gains ($400,000) total $1,215,000. Since this amount is greater than the Social Security base amount for single taxpayers ($25,000), some of her Social Security benefits will be taxable. To calculate the amount, you subtract the base amount from the combined income: $1,215,000 - $25,000 = $1,190,000. Then you apply the formula to calculate the taxable benefits which in this case is $25,000. Therefore, the amount of her taxable Social Security benefits is $25,500 (the lesser of 50% of her Social Security benefits or $25,000).

Question 17

Insurance proceeds received because of the destruction of property are

Accepted Answer

Insurance proceeds received because of the destruction of property are generally excluded from gross income. However, if the proceeds received exceed the adjusted basis of the destroyed property, the excess is considered a gain and is includible in gross income. If the proceeds received are less than or equal to the adjusted basis of the destroyed property, there is no gain and the proceeds are not included in gross income. Option D correctly states that insurance proceeds are included in gross income only to the extent the proceeds exceed the adjusted basis of the replacement property.

Question 18

Ellen is a single taxpayer with qualified dividend income of $5,000,and itemized deductions of $13,000.
Required: Determine Ellen's taxable income and tax liability in 2019,assuming the following salaries
a.$40,000.
b.$100,000.

Accepted Answer

The answer of Ellen is a single taxpayer with qualified...

Question 19

Ms.Walter,age 70,is thinking about going back to work part-time.She knows that the wages may affect the taxability of her Social Security benefits.What is the maximum percentage of Social Security benefits that could become taxable?

Accepted Answer

If Ms. Walter's combined income (income from all sources including part-time wages and 50% of her Social Security benefits) is between $25,000 and $34,000 for a single filer or between $32,000 and $44,000 for a joint filer, up to 50% of her Social Security benefits may be taxable. If her combined income is above $34,000 for a single filer or $44,000 for a joint filer, up to 85% of her Social Security benefits may be taxable. Therefore, the maximum percentage of Social Security benefits that could become taxable is 85%.

Question 20

The term "Social Security benefits" does not include

Accepted Answer

While supplementary Medicare benefits may be associated with Social Security benefits, they are not considered Social Security benefits on their own.

Quiz 19: Gross Income: Inclusions