Tax and Gross Income

1511 Words Jun 24th, 2013 7 Pages
TEST 1
Correct Response
Indicate whether each of the items listed below would be included (A) in or excluded (B) from gross income for the 2012 tax year. 1. Alimony | | 2. Lottery winnings | | 3. Life insurance proceeds received upon the death of a family member | | 4. Child support payments | | 5. Reimbursement of hospital expenses from a health insurance plan | | 6. Municipal bond interest | | 7. Unemployment compensation | | 8. Scholarships for tuition and books | | 9. Wages | | 10. Farm income | | 11. Inheritances | |
Which of the following amounts must be included in the gross income of the recipient? a. Welfare payments | | | b. Royalties | | | c. Child support payments | | | d. Gifts |
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a. True | | b. False | | |
Interest income received by a cash basis taxpayer is generally reported in the tax year it is received. a. True | | b. False | | |
Interest on U.S. Treasury Bonds is not taxable. a. True | | b. False | | |
Taxpayers must report interest income on Series EE savings bonds as the interest accrues. a. True | | b. False | | |
A gift received for opening a bank account is not taxable income to the recipient. a. True | | b. False | | |
Child support payments are deductible by the spouse making the payments. a. True | | b. False | | |
If a divorce agreement executed in 2012 specifies that a portion of the amount of an alimony payment is contingent upon the status of a child, that portion is considered to be a child support payment. a. True | | b. False | | |
Correct Response eBook Problem 2-9
Alimony (LO 2.3)
Arlen is required by his divorce agreement to pay alimony of $2,000 a month and child support of $2,000 a month to his ex-wife Jane. What is the tax treatment of these two payments for Arlen and Jane?
Arlen is entitled to a deduction for .
Jane includes in her income .
Answers: only the alimony payments; only the alimony payments.
Alimony payments are deductible by the individual making the payments, and they are taxable income to the person receiving the payments. For divorce agreements executed after 1984, alimony payments must meet the following requirements:
1. The payments

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