Question & Answer

It has been suggested that tax policy favors deductions for AGI compared to itemized deductions. Describe two ways in which deductions for AGI are treated more favorably than itemized deductions.

} Suppose you asked your favorite AI query tool the following question: “Are athletic scholarships that require student participation in a specific sport taxable for federal income tax purposes?”  The AI tool provided the following response:

Suppose you asked your favorite AI query tool the following question: “On December 15, 2024, Janelle sold 100 shares of stock she purchased five years ago. Janelle realized a $2,000 capital gain on the sale. She decided to repurchase the 100 shares of stock on January 10, 2025. 

Suppose you asked your favorite AI query tool the following question: “Are property taxes that refunded included in gross income for federal income tax purposes?”  The AI tool provided the following response:

Diana and Ryan Workman were married on January 1 of last year. Ryan has an eight-year-old son, Jorge, from his previous marriage. Diana works as a computer programmer at Datafile Inc. (DI) earning a base salary of $94,000. Ryan is self-employed and runs a day care center. The Workmans reported the following financial information pertaining to their activities during the current year.

Consider the following letter and answer Shady’s question.

Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken files as a single taxpayer. Determine Ken’s gross income and complete page 1 of Form 1040 (through line 9) and Schedule 1 for Ken.

Irene is disabled and receives payments from a number of sources. The interest payments are from bonds that Irene purchased over past years and a disability insurance policy that Irene purchased herself. Calculate Irene’s gross income.

Charlie was hired by Ajax this year as a corporate executive and a member of the board of directors. During the current year, Charlie received the following payments or benefits paid on his behalf.

Allie received a $50,000 distribution from her 401(k) account this year that she established while working for Big Stories, Inc. Assuming her marginal ordinary tax rate is 24 percent, how much tax and penalty will Allie pay on the distribution under the following circumstances?

] Dontae’s employer has offered him the following employment package. What is Dontae’s gross income from his employment?

This year, Leron and Sheena sold their home for $750,000 after all selling costs. Under the following scenarios, how much taxable gain does the home sale generate for Leron and Sheena? Assume the couple is married filing jointly.

This year, Janelle received $200,000 in life insurance proceeds. Under the following scenarios, how much of the $200,000 is taxable?

What amounts are included in gross income for the following taxpayers? Explain your answers.

Tim’s parents plan to provide him with $50,000 to support him while he establishes a new landscaping business. In exchange for the support, Tim will maintain the landscape at his father’s business. Under what conditions will the transfer of $50,000 be included in Tim’s gross income? Explain. Do you have a recommendation for Tim and his parents?

Terry was ill for three months and missed work during this period. During the illness, Terry received $4,500 in sick pay from a disability insurance policy. What amounts are included in Terry’s gross income under the following independent circumstances?

Bart is the favorite nephew of his aunt Thelma. Thelma transferred several items of value to Bart. For each of the following transactions, determine the effect on Bart’s gross income:

Grady is a member of a large family and received the following payments this year. For each payment, determine whether the payment constitutes realized income and determine the amount of each payment Grady must include in his gross income.

Cecil cashed in a Series EE savings bond with a redemption value of $14,000 and an original cost of $9,800. For each of the following independent scenarios, calculate the amount of interest Cecil will include in his gross income assuming he files as a single taxpayer:

For each of the following situations, indicate how much the taxpayer is required to include in gross income and explain your answer:

Fred currently earns $9,000 per month. Fred has been offered the chance to transfer for three to five years to an overseas affiliate. His employer is willing to pay Fred $12,000 per month if he accepts the assignment. Assume that the maximum foreign earned income exclusion for next year is $126,500.

Grady is a 45-year-old employee with AMUCK Garbage Corporation. AMUCK pays group-term life insurance premiums for employees, and Grady chose the maximum face amount of $120,000. What amount, if any, of the premium AMUCK paid on his behalf must Grady include in his gross income for the year? Provide a tax authority to support your answer.

Jimmy has fallen on hard times recently. Last year he borrowed $250,000 and added an additional $50,000 of his own funds to purchase $300,000 of undeveloped real estate. This year the value of the real estate dropped dramatically and Jimmy’s lender agreed to reduce the loan amount to $230,000. For each of the following independent situations, indicate the amount Jimmy must include in gross income and explain your answer:

Wally is employed as an executive with Pay More Incorporated. To entice Wally to work for Pay More, the corporation loaned him $20,000 at the beginning of the year at a simple interest rate of 1 percent. Wally would have paid interest of $2,400 this year if the interest rate on the loan had been set at the prevailing federal interest rate.

Priya works for Shine Company, a retailer of upscale jewelry. How much taxable income does Priya recognize under the following scenarios?