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Exam 5: Gross Income: Exclusions

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Question 61

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An employee can exclude from gross income the value of meals provided by his or her employer whenever:

A) The meal is not extravagant.
B) The meals are provided on the employer's premises for the employer's convenience.
C) There are no places to eat near the work location.
D) The meals are provided for the convenience of the employee.
E) None of these.

F) B) and D)
G) B) and E)

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Question 62

True/False

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Sarah's employer pays the hospitalization insurance premiums for a policy that covers all employees and retired former employees.After Sarah retires, the hospital insurance premiums paid for her by her employer can be excluded from her gross income.

A) True
B) False

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Question 63

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Brooke works part-time as a waitress in a restaurant.For groups of seven or more customers, the customer is charged 15% of the bill for Brooke's services.For parties of less than seven, the tips are voluntary.Brooke received $11,000 from the groups of seven or more and $7,000 in voluntary tips from all other customers.Using the customary 15% rate, her voluntary tips would have been only $6,000.Brooke must include $18,000 ($11,000 + $7,000) in gross income.

The exclusion for health insurance premiums paid by an employer applies to:

Kristen's employer owns its building and provides parking space for its employees.The value of the free parking is $150 per month.Karen's employer does not have parking facilities but reimburses its employees for the cost of parking in a nearby garage up to $150 per month.

The CEO of Cirtronics Inc., discovered that the company's competitor had adopted a cafeteria plan for its employees.The CEO is concerned about retaining her talented employees and would like you to provide a brief explanation as to why a cafeteria plan may be attractive to the company's employees.

Jena is a full-time undergraduate student at State University and qualifies as a dependent of her parents.Her only source of income is a $10,000 athletic scholarship ($1,000, books; $5,500, tuition; $500, student activity fee; and $3,000, room and board) .Jena's gross income for the year is:

Tonya is a cash basis taxpayer.In 2019, she paid state income taxes of $8,000.In early 2020, she filed her 2019 state income tax return and received a $900 refund.

Louise works in a foreign branch of her employer's business.She earned $5,000 per month throughout the relevant period.Which of the following is correct?

Sandy is married, files a joint return, and expects to be in the 24% marginal tax bracket for the foreseeable future. All of his income is from salary and all of it is used to maintain the household.He has a paid up life insurance policy with a cash surrender value of $100,000.He paid $60,000 of premiums on the policy.His gain from cashing in the life insurance policy would be ordinary income.If he retains the policy, the insurance company will pay him at least $3,000 (3%) interest each year.Sandy thinks he can earn a higher return if he cashes in the policy and invests the proceeds. a.What before-tax rate of return would Sandy be required to earn on the proceeds from cashing in the policy to equal the return earned with the insurance company? b.Assume Sandy estimates he can earn a 6% before-tax rate of return on the proceeds from cashing in the policy.Assume he can earn a 6% return for the remainder of his life and that he will reinvest all earnings at the same 6% before-tax rate of return.If Sandy expects to live 10 more years, which alternative will yield the greater amount to his beneficiaries upon his death? (Given: The future value of an annuity in 10 years assuming a 4.32% after-tax return is 12.19.The future value of an annuity in 10 years assuming a 2.16% return is 11.03).

Stuart owns 300 shares of Turquoise Corporation stock and 2,000 shares of Blue Corporation stock.During the year, Stuart received 150 shares of Turquoise as a result of a 1-for-2 stock split.The value of the shares received was $4,800.Stuart also received 100 shares of Blue Corporation stock as a result of a 5% stock dividend.Stuart did not have the option of receiving cash from Blue.The additional shares he received had a value of $7,200.Stuart's gross income from the receipt of the additional Turquoise and Blue shares is:

Bob had a terminal illness and realized that he "can't take it with him." Therefore, he cashed in his insurance policy and received $120,000.He had paid $50,000 in premiums on the policy.He used the money to fulfill his lifelong ambitions of going to the Super Bowl, driving an expensive sports car, and vacationing in Bermuda. Was Bob's behavior consistent with the Congressional intent in providing the tax exemption he was permitted to use?