Exclusion Examples-1

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Wayne State College *

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445

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Finance

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Apr 3, 2024

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Exclusion Examples 1. TP’s mother buys a life insurance policy with a face amount of $100,000. She names TP as beneficiary of the policy. In 2023, TP’s mother dies. How much GI does TP have from the life insurance policy? $0 2. In 2 above, TP invests the $100,000 in stock and earns $5,000 interest and dividends in 2023. How much income must TP report in 2023? $5,000 included 3. Edward owns a life insurance policy insuring his own life for $100,000. Because of financial need, he sells the policy to TP for $60,000 in 2022. In 2023, Edward dies and TP collects the face amount of the policy.. How much income must TP report in 2023 from the life insurance? $100,000 – 60,000 = 40,000 4. TP had a life insurance policy with a face amount of $10,000. When the cash value was $2,000, TP surrendered his policy. He had paid premiums of $1,500. Does he have taxable gain? $2,000 – 1,500 = $500 capital gain 5. In lieu of life insurance, TP’s employer provides a death benefit to an employee’s survivors. The amount of the benefit is $5,000 to the surviving spouse and $2,500 to each dependent child. In 2023, TP dies leaving her spouse and 2 dependent children. How much of the death benefit must be included in GI? $0 6. TP owns City of Wayne Bonds. TP’s basis in the bonds is $10,000. During 2023, TP received $800 of interest from the bonds. In late 2023, he sold the bonds for $12,000. How much income does TP have from the bonds in 2023? $ 12,000 – 10,000 = $2,000 capital gain 1
7. TP received compensatory damages for injuries sustained in an automobile accident in the amount of $75,000. In addition, because the other driver was drunk, the jury awarded TP $25,000 of punitive damages. How much GI must TP report? $25,000 8. Same facts as in 7, except that $15,000 of the compensatory damages were for emotional distress. How much GI must TP report? $15,000 + 25,000 = $40,000 9. Same facts as in 7 except that the damages were received for defamation, not negligence. How much GI must TP report? $100,000 ce 10. TP purchased health insurance from an insurance company. During the year, he paid $9,000 in premiums. In December, he had a triple by-pass surgery, and the insurance company paid the surgeon and the hospital $60,000. How much of the benefits should be included in GI? $0 11. TP receives health insurance through her employment. The employer paid all the premiums. In 2023, TP was reimbursed by the insurance company for medical expenses in the amount of $8,000. How much of the benefits should be included in GI? $0 12. Same facts as in 11 except that the insurance reimburses the TP on a per diem basis. TP received $8,500 in benefits, although the actual expenses were $8,000. How much GI should be reported? $500 2
13. TP’s employer provides a medical reimbursement plan, rather than traditional insurance. During the year, the TP was reimbursed by the employer for medical expenses amounting to $5,000. a. How much is GI if the plan is nondiscriminatory? $0 b. How much is GI if the plan is discriminatory? $5,000 14. During the year, TP’s employer paid $16,000 in health insurance premiums for the TP and his family. How much is included in GI? $0 15. First Church provides a parsonage for its senior pastor. The parsonage would have a fair rental value of $12,000. In addition the church pays for the upkeep and utilities. This amounts to an additional $2,000. How much GI does the pastor have to report? $0 16. Same facts as in 15, except that the pastor is the minister of music and has no other pastoral duties. How much GI does the pastor have to report? $14,000 15. TP borrowed $20,000 from a lender. In 2023, after $15,000 of the loan had been repaid, the lender discharged the balance of the debt. How much GI must TP report in 2023? $5,000 16. Same facts as in 15, except that the discharge was a result of bankruptcy? $0 3
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17. Same facts as in 16. TP has a depreciable asset with a basis of $10,000. What effect does the discharge have on the basis of the asset? $10,000 – 5,000 = $5,000 new basis 18. Margaret is a student at State U. She receives a full-ride scholarship for her athletic ability. The scholarship amount is $9,000: $4,000 for tuition and books and $5,000 for room and board. How much GI should Margaret report? $5,000 for room and board 19. Roger is a graduate teaching assistant at State U. He receives a tuition waiver and a monthly stipend of $1,000. If he were required to pay tuition, the amount would be $5,000. How much GI must Roger report? $1,000/month stipend 20. Edward is a professor at Wayne State College. His daughter, Sarah, attends Chadron State College. As part of the negotiated agreement with the faculty union, faculty member’s children who attend a Nebraska state college receive a tuition waiver equal to 50% of the tuition. Normal tuition for Sarah for the academic year would be $6,000. Edward pays $3,000. a. Does Edward have GI if Sarah is an undergraduate? $0 b. Does Edward have GI if Sarah is a graduate student? $3,000 21. TP is an emergency room nurse at a local hospital. Because of the nature of her job, her employer allows her to eat her meals free at the hospital cafeteria when she is on duty. The meals have a FMV of $400. How much gross income does she have? $0 22 TP manages a hotel. In order to be available on short notice, the employer requires that TP reside in a hotel suite. The hotel suite has a fair rental value of $15,000. Does TP have to include the fair rental value in gross income? 4
$0 23. Same facts as in 22, except that the TP has the option of either living in the hotel or receiving a $15,000 housing allowance. TP chooses to live in the hotel. How much GI does the TP have? $15,000 24. Stewart is president of State U. He is allowed to live in the President’s mansion rent-free. The mansion has an appraised value of $1,000,000. How much GI does Stewart have? $1,000,000 x .05 = $50,000 25. Employer provides a cafeteria plan for employee benefits. Under the plan the employee has the choice of selecting health insurance or $100/month cash. TP could be covered by his spouse’s health insurance policy. a. How much GI does he have if he selects additional insurance? $0 b. How much GI does he have if he selects cash? $1,200 26. Employer provides an educational assistance plan. Employer pays all the tuition for employees who pursue higher education. Employee works as a staff accountant. a. Employer pays TP’s tuition to take a tax accounting course. The normal tuition is $300. How much GI does the TP have? $0 b. Employer pays TP’s tuition to take a flower arranging course. The normal tuition is $100. How much GI does the TP have? $100 27. Tom is a flight attendant for United Airlines. The company has a policy of allowing employees to fly free of charge on a standby basis. Tom travels extensively under this policy. Had he paid for the flights, the cost would have been $9,000. How much GI does Tom have? 5
$0 28. TP works for a manufacturer of computer printers. TP is allowed to purchase a printer for $150. The retail value of the printer is $250. The $150 represents the cost of the manufacturer. a. How much does the TP have to include if the policy is nondiscriminatory? $0 b. How much does the TP have to include if the policy is discriminatory? $100 29.. TP is a highly-compensated employee. Because of his prestigious position, he is provided with expensive office furniture with a FMV of $30,000. Other employees in the organization are given standard issue office furniture with a value no greater than $5,000. The company also pays professional dues of $1,500 for the TP. How much GI does TP have from this benefit? $0 30. TP is a highly-compensated employee. Because of his position, he is allowed to use the copy machine to copy resolutions to be introduced at a board meeting of the Chamber of Commerce. The copies have a FMV of $8.00. Other employees are forbidden to use the copy machine for personal purposes. How much GI does TP have? $0 31. TP is married and files jointly with her spouse. She has purchased Series EE bonds to help finance the college education of her daughter. During the daughter’s first year of college, her tuition and books are $6,000. The Series EE bonds have produced $5,000 of interest income. TP’s MAGI is $95,000. How much interest can be excluded? $5,000 35. TP works in Sweden for 330 days during 2023. He earns $140,000 as an employee while working there. How much is his foreign earned income exclusion? 120,000 x 330/365 = $108,493 6
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