For each of the following items, calculate the amount, if any, that the taxpayer

Question

For each of the following items, calculate the amount, if any, that the taxpayer must include in 2015 gross income. Include all supporting calculations.

a. Beverly died during the current year. At the time of her death, her accrued salary and commissions totaled $3,000 and were paid to her husband. The employer also paid the husband $35,000 which represented an amount equal to Beverly’s salary for the year prior to her death. The employer had a policy of making the salary payments to “help out the family in the time of greatest need”. Beverly’s spouse collected her interest in the employer’s qualified profit sharing plan amounting to $30,000. As beneficiary of his wife’s life insurance policy, Beverly’s spouse elected to collect the proceeds in installments. In the year of her death, he collected $8,000 which included $1,500 interest income. For each of the above items, determine which ones are subject to income tax in the year of Beverly’s death. (5 points)

b. Ben was diagnosed with a terminal illness. His physician estimated that Ben would live no more than 18 months. After he received the doctor’s diagnosis, Ben cashed in his life insurance policy to pay some medical bills. Ben had paid $12,000 in premiums on the policy, and he collected $50,000, the cash surrender value of the policy. (1 points)

c. Henry enjoys excellent health, but cashed in his life insurance policy to purchase a new home. He had paid premiums of $12,000 and collected the cash surrender value of $50,000. (1 point)

d. Roger, age 19, is a full-time graduate student at State College. During 2015, he received the following payments: scholarship for tuition and books $3,600; loan from college financial aid office $1,500; cash support from parents $3,000; cash prize award from contest $500; and a room charge waiver of $2,400 because Roger served as a resident advisor in a dormitory. For each of the above items, determine which ones should be included in Roger’s gross income. (5 points)

e. Julie was suffering from a viral infection that caused her to miss work for 90 days. During the first 30 days of her absence, she received her regular salary of $5,000 from her employer. For the next 60 days, she received $10,000 under an accident and health insurance policy that she had purchased for premium payments totaling $6,000. (2 points)

f. Matilda works for a company with 1,000 employees. The company has a hospitalization insurance plan that covers all employees. However, the employee must pay the first $3,000 of his or her medical expenses each year. Each year, the employer contributes $1,500 to each employee’s health savings account. Matilda’s employer made the contributions in 2014 and 2015, and the account earned $100 interest in 2015. At the end of 2015, Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy. (3 points)

g. Ridge is a manager of a motel. As a condition of his employment, Ridge is required to live in a room on the premises so that he would be there in case of emergencies. Ridge considered this a fringe benefit since he would otherwise be required to pay $600 per month rent. The room that Ridge occupied normally rented for $60 per night, or $1500 per month. On the average, 90% of the motel rooms were occupied. Ridge also received $500 cash per month for meals. (2 points)

h. Peggy is an executive for the Tan Furniture Manufacturing Company. Peggy purchased furniture from Tan for $7,000. The price Tan ordinarily charges a wholesaler is $8,500. The retail price of the furniture was $12,000, and Tan’s cost was $8,000. The company also paid for Peggy’s parking space in a garage near the office. The parking fee was $1,200 for the year. All employees are allowed to buy furniture at a discounted price comparable to that charged to Peggy. However, the company does not pay other employees’ parking fees. (4 points)

i. Martha participated in a qualified tuition program for the benefit of he son. She invested $5,000 in the fund. Four years later, in 2015, her son withdrew $7,500, the entire balance in the program, to pay his college tuition. Calculate Martha’s gross income. Calculate her son’s gross income. (2 points)

Explanation / Answer

A..

$34500

Salary and commission+profit sharing plan+intrest Income

3000+30000+1500=34500

Included in gross income is $34500

B.

Ben does not recognize any gross income

C.

$38000

Henry must recognize $38000(50000-12000) of gross income

D.

Roger adjusted gross income is $500(cash prize award from a contest

E.

$15000

$15000(5000+10000) must include in gross income

F.

$0 is included in gross income

G.

$0 is required to included in gross income

H.

Peggy gross income from above is $0

I.

Martha is not required to include the $2500 (7500-5000) in her gross income when the funds are used to pay the tuition

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