M2 - Gross Income: Part 1

Question 1

amount allowed to be excluded for employee-provided parking

Answer 1

up to $265 per month

Question 2

amount allowed to be excluded for employee’s educational expenses

Answer 2

up to $5,250 of payments made by an employer (undergraduate and graduate)

Question 3

amount allowed to be excluded for premiums paid by an employer for group term life insurance policy

Answer 3

premiums up to $50,000 of coverage for an employee are excludable

Question 4

David is a CPA that enjoys playing the lottery. This year David won 10,000 in lottery scratch-off tickets. He spent 200 purchasing the tickets. Which is true?

Answer 4

• David mus include the 10,000 in gross income and can deduct 200 as an itemized deduction

Question 5

t/f: amount received for disability pay and punititive damages is

Answer 5

is taxable

Question 6

if Kim had paid the disability insurance premiums after tax, then the benefits received would

Answer 6

not be included in gross income

Question 7

Amounts for reimbursement for medical expenses paid by the employee and the health insurance premiums paid by the employee

Answer 7

are not included in gross income

Question 8

Amounts recevied for damages for personal physical injury is

Answer 8

is not taxable

Question 9

interest on municipal bonds (bonds issue by STATE OR LOCAL governments

Answer 9

is excluded from gross income

Question 10

interest on obligations of a possession of the US, such as Puerto Rico is

Answer 10

tax-exempt

Question 11

interest on state tax refund (paid by state government for late payment of tax refund to elizabeth)

Answer 11

is included in gross income

Question 12

Is there an exclusion for US Series EE Savings Bond interest for those using the MFS status?

Answer 12

No exclusion for this status

Question 13

Interest on Series EE Savings Bonds is ______ when it is used to pay for higher education for the taxpayer, a spouse, or dependents. The amount paid for higher education is _______ by any tax free-______ received

Answer 13

tax-exempt
reduced
scholarships

B/c Sue’s $40,000 AGI is under the phase-out threshold in the example, the interest may be excluded.

Question 14

US Series EE Savings Bond Interest Facts (5)

Answer 14

1. Interest is used to pay for higher education of taxpayer, a spouse, or dependents
2. Eligible higher education expenses are reduced by tax-free scholarships
3. The taxpayers is over age 24 when interest is issued
4. The bonds are acquired after 1989
5. the interest exclusion is subject to a phase-out

Question 15

Interest income is reported in ________ and a ________ for the forfeited interest due to withdrawing the money early from the investment ______

Answer 15

• gross income

- an adjustment to AGI is taken for the early withdrawal penalty

Question 16

T/F: A 2-for-1 stock split is not a taxable event

Answer 16

True a 2 for 1 stock split is not a taxable event (see example in notes)

Question 17

If a divorce settlement provides for a ______ by a spouse, the spouse gets no deduction for payments made and the payments are not deductible in gross income of the spouse receiving the payment

Answer 17

Property settlement

Question 18

Scholarships used for _______ are not included in gross income

Answer 18

tuition, fees, and books

Question 19

There is no penalty on a premature distribution from an IRA if:

Answer 19

• it was used to pay medical expenses in excess of 10% AGI
• it was used to pay for a first-time home purchase
• it was used to pay for college tuition

Question 20

the max amount of taxable SS benefits is ____ of SS benefits received

Answer 20

85%

Question 21

Provisional income used to determine taxation of SS benefits =

Answer 21

AGI + tax-exempt interest + 50% of SS benefits

Question 22

Taxpayers must include in income the lesser of _____ or _______

Answer 22

the lesser of:

• 50% of SS received OR
• 50% of the excess of provisional income over a threshold.