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Taxation in the United States and Gross Income

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552. CHAPTER 5—GROSS INCOME: EXCLUSIONS Question MC #1 The taxpayer’s marginal tax bracket is 25%. Which would the taxpayer prefer?
a. $1.00 taxable income rather than $1.00 tax-exempt income.
*b. $.80 tax-exempt income rather than $1.00 taxable income.
c. $1.25 taxable income rather than $1.00 tax-exempt income.
d. $1.30 taxable income rather than $1.00 tax-exempt income. e. None of the above.
553. CHAPTER 5—GROSS INCOME: EXCLUSIONS Question MC #2 Cash received by an individual:
a. Is not included in gross income if it was not earned. b. Is not taxable unless the payor is legally obligated to make the payment.
c. Must always be included in gross income.
*d. May be included in gross income although the payor is not legally …show more content…

Ali, a customer, died owing Swan $1,500. The balance due included $200 accrued interest that Swan has included in income. When Swan collects $1,500 from the insurance company, Swan:
a. Must recognize $1,500 income from the life insurance proceeds. b. Must recognize $1,300 income from the life insurance proceeds. c. Does not recognize income because life insurance proceeds are tax-exempt. *d. Does not recognize income from the life insurance because the entire amount is a recovery of capital. e. None of the above.
559. CHAPTER 5—GROSS INCOME: EXCLUSIONS Question MC #8 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. Henry enjoys excellent health, but he cashed in his life insurance policy to purchase a new home. He had paid premiums of $12,000 and collected $50,000 from the insurance company.
a. Neither Ben nor Henry is required to recognize gross income.
b. Both Ben and Henry must recognize $38,000 ($50,000 – $12,000) of gross income. *c. Henry must recognize $38,000 ($50,000 – $12,000) of gross income, but Ben does not recognize any gross income.
d. Ben must recognize $38,000 ($50,000 – $12,000) of gross income, but Henry does not recognize any gross

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