Question

1. Which of the following items are inclusions (included) in gross income?

1. During the year, stock that the taxpayer purchased as an investment doubled in value.
2. Amount an off-duty motorcycle police officer received for escorting a funeral procession.
3. While his mother was in the hospital, the taxpayer sold some of her jewelry to help pay for the hospital bills.
4. Child support payments received.
5. A damage deposit the taxpayer recovered when he vacated the apartment he had rented.
6. Interest received by the taxpayer on an investment in general purpose bonds issued by IBM.
7. Amounts received by the taxpayer, a baseball “Hall of Famer,” for autographing sports equipment (e.g., balls and gloves).
8. Tips received by a bartender from patrons. (Taxpayer is paid a regular salary by the cocktail lounge that employs him.)
9. Taxpayer sells his Super Bowl tickets for three times what he paid for them.
10. Taxpayer receives a new BMW from his grandmother when he passes the CPA exam.

2. Which of the following items are exclusions (excluded) from gross income?

1. Damages award received by the taxpayer for personal physical injury—none were for punitive damages.
2. A new golf cart won in a church raffle.
3. Amount collected on a loan previously made to a college friend.
4. Insurance proceeds paid to the taxpayer on the death of her uncle—she was the designated beneficiary under the policy.
5. Interest income on City of Chicago bonds.
6. Jury duty fees.
7. Stolen funds the taxpayer had collected for a local food bank drive.
8. Reward paid by the IRS for information provided that led to the conviction of the taxpayer’s former employer for tax evasion.
9. An envelope containing $8,000 found (and unclaimed) by the taxpayer in a bus station.

3. Heather, age 12, lives in the same household with her mother, grandmother, and uncle. Who can claim Heather as a dependent?
4. During the year, Hernando has the following transactions:

• Gain on the sale of stock held as an investment for 10 months.
• Gain on the sale of land held as an investment for 4 years.
• Gain on the sale of a houseboat owned for 2 years and used for family vacations.
• Loss on the sale of a reconditioned motorcycle owned for 3 years and used for recreational purposes.

How should Hernando treat these transactions for income tax purposes?

Answer 1

Question	Answer
Which of the following items are inclusions (included) in gross income?
a. During the year, stock that the taxpayer purchased as an investment doubled in value.	Not Included in Gross income
b. Amount an off-duty motorcycle police officer received for escorting a funeral procession.	It is compensation for services given. Included in Gross Income.
c. While his mother was in the hospital, the taxpayer sold some of her jewelry to help pay for the hospital bills.	Included in Gross Income
d. Child support payments received.	Not Included in Gross income
e. A damage deposit the taxpayer recovered when he vacated the apartment he had rented.	Not Included in Gross income
f. Interest received by the taxpayer on an investment in general purpose bonds issued by IBM.	Included in Gross Income
g. Amounts received by the taxpayer, a baseball “Hall of Famer,” for autographing sports equipment (e.g., balls and gloves).	It is compensation for services given. Included in Gross Income.
h. Tips received by a bartender from patrons. (Taxpayer is paid a regular salary by the cocktail lounge that employs him.)	Included in Gross Income
i. Taxpayer sells his Super Bowl tickets for three times what he paid for them.	Included in Gross Income
j. Taxpayer receives a new BMW from his grandmother when he passes the CPA exam.	Not Included in Gross income
Which of the following items are exclusions (excluded) from gross income?
a. Damages award received by the taxpayer for personal physical injury—none were for punitive damages.	Excluded
b. A new golf cart won in a church raffle.	Not Excluded
c. Amount collected on a loan previously made to a college friend.	Not Excluded
d. Insurance proceeds paid to the taxpayer on the death of her uncle—she was the designated beneficiary under the policy.	Excluded
e. Interest income on City of Chicago bonds.	Excluded
f. Jury duty fees.	Not Excluded
g. Stolen funds the taxpayer had collected for a local food bank drive.	Not Excluded
h. Reward paid by the IRS for information provided that led to the conviction of the taxpayer’s former employer for tax evasion.	Not Excluded
i. An envelope containing $8,000 found (and unclaimed) by the taxpayer in a bus station.	Not Excluded
Heather, age 12, lives in the same household with her mother, grandmother, and uncle. Who can claim Heather as a dependent?	Mother, Grandmother & Uncle all three are eligible to claim Heather as dependent. Mother has priority, if she does not claim then Grandmother or uncle whoever has higher adjusted gross income can claim
During the year, Hernando has the following transactions. How should Hernando treat these transactions for income tax purposes?
Gain on the sale of stock held as an investment for 10 months.	Taxable at ordinary income rate. Considered as short term capital gain
Gain on the sale of land held as an investment for 4 years.	Taxable at preferential rates 15% or 0%. Considered as long term capital gain
Gain on the sale of a houseboat owned for 2 years and used for family vacations.	Taxable at preferential rates 15% or 0%. Considered as long term capital gain
Loss on the sale of a reconditioned motorcycle owned for 3 years and used for recreational purposes.	Items used for personnel purpose does not qualify for capital loss treatment