Individual Taxation - Exclusions

Question 1

T/F

Benefits received as workers’ compensation are ALWAYS excluded from gross income

Answer 1

TRUE

Question 2

T/F

Benefits received as compensation for damages for physical injuries are ALWAYS excluded from gross income

Answer 2

TRUE

Question 3

Amounts received from an employer’s accident and health plan as reimbursement for medical expenses are excludable as long as ______

Answer 3

The medical expenses are NOT deducted as itemized deductions

Question 4

T/F

Medical insurance premiums paid by an employer are included in an employee’s gross income

Answer 4

FALSE

Medical insurance premiums paid by an employer are excluded from an employee’s gross income

Question 5

Qualified moving expense reimbursements are an employee fringe benefit. They can be excluded from gross income as long as ______

Answer 5

The expenses would have been deductible as moving expenses if directly paid or incurred by the employee

Question 6

T/F

Gifts are excluded from the definition of gross income

Answer 6

TRUE

Question 7

T/F

Bequests/devises/inheritances are included in the definition of gross income - i.e., one must record their inheritances as gross income and pay taxes on it

Answer 7

FALSE

Property received as a bequest/devise/inheritance is excluded from the definition of gross income

Question 8

T/F

Dividends received on a life insurance policy are never excluded from gross income

Answer 8

FALSE

Dividends on life insurance policies are treated as a reduction of the cost of insurance if the total dividends have not exceeded accumulated premiums paid. In this case they will be excluded from gross income

Question 9

T/F

Stock dividends are always excludable from gross income

Answer 9

FALSE

Generally stock dividends are nontaxable; however, stock distributed on preferred stock results in a taxable stock dividend equal to the FMV of the dividend on date of distribution

Question 10

T/F

Tax refunds are excluded from gross income

Answer 10

TRUE

Note that the refund itself is excluded from gross income, but interest on a refund must be included in gross income

Question 11

T/F

An individual may be able to exclude from income all (or a part) of the interest received on the redemption of Series EE US Savings Bonds

Answer 11

TRUE

Question 12

For an individual to qualify for excluding from income all (or a part) of the interest received on the redemption of Series EE US Savings Bonds, the bonds must be issued after December 31, ______

Answer 12

1989

Question 13

For an individual to qualify for excluding from income all (or a part) of the interest received on the redemption of Series EE US Savings Bonds, the purchaser of the bonds must be _______

Answer 13

the Sole owner of the bonds (or joint owner with his/her spouse)

Question 14

For an individual to qualify for excluding from income all (or a part) of the interest received on the redemption of Series EE US Savings Bonds, the owner(s) of the bonds must be at least ______ year’s old before the bond’s issue date

Answer 14

24

Question 15

For an individual to qualify for excluding from income all (or a part) of the interest received on the redemption of Series EE US Savings Bonds, the redemption proceeds must be used for what?

Answer 15

To pay tuition and fees incurred by the taxpayer, spouse, or dependents to attend a college or university or certain vocational schools

Question 16

T/F

Interest on obligations of a state or one of its political subdivisions (example, New York Port Authority Bonds) are tax-exempt

Answer 16

TRUE

Question 17

T/F

Interest on a possession of the US (example, Puerto Rico Commonwealth Bonds) are tax-exempt

Answer 17

TRUE

Question 18

T/F

Interest on state/municipal bonds should be excluded from income

Answer 18

TRUE

Question 19

A candidate for a degree can exclude amounts received as a scholarship or fellowship if …

Answer 19

according to the conditions of the grant the amounts are used for the payment of tuition, fees, books, supplies, and equipment required for courses at an educational institution

Question 20

T/F

A lessor includes in income any increase in the value of property caused by improvements made by the lessee

Answer 20

FALSE

A lessor EXCLUDES from income any increase in the value of property caused by improvements made by the lessee UNLESS the improvements were made in lieu of rent

Question 21

T/F

A lessor excludes from income any increase in value of property caused by improvements made by the lessee when these improvements were made by the lessee in lieu of rent

Answer 21

FALSE

A lessor excludes from income any increase in value of property caused by improvements made by the lessee UNLESS the improvements were made in lieu of rent. If the improvements are made in lieu of rent then this is included in income as rent payments would be included in income.

Question 22

Alimony is to be _______ (included in/excluded from) gross income by the payee and is _______ (deductible/nondeductible) by the payor

Answer 22

Included

Deductible

Question 23

Child Support is to be _______ (included in/excluded from) gross income by the payee and is _______ (deductible/nondeductible) by the payor

Answer 23

Excluded

Nondeductible

Basically Child Support is given but ignored for Tax Purposes

Question 24

T/F

An award for civic achievement is always excluded from gross income

Answer 24

FALSE

Question 25

What 3 requirements must be met for an award for civic achievement to be excluded from gross income?

Answer 25

1) The recipient was selected without any action on his/her part
2) The recipient is not required to render substantial future services as a condition of receiving the award
3) The recipient designates that the award is to be directly transferred by the payor to a governmental unit, or a tax-exempt charitable, educational, or religious organization

Question 26

T/F

Advanced/Prepaid Rental Payments are excluded from income until those revenues can be matched with their expenses

Answer 26

FALSE

Advanced Rental Payments must be included in gross income when received

Question 27

T/F

Lease cancellation payments may be temporarily excluded from income depending on the taxpayer’s method of accounting

Answer 27

FALSE

Lease cancellation payments must be included in gross income immediately when received, no matter what the taxpayer’s method of accounting is

Question 28

T/F

State unemployment compensation benefits are to be excluded from adjusted gross income

Answer 28

FALSE

State unemployment compensation benefits are included in gross income in full

Question 29

T/F

A corporation who pays insurance premiums for a life insurance policy on their corporation’s president (corporation is the beneficiary of the policy) will ultimately exclude from income the proceeds of the policy when the president dies

Answer 29

TRUE