1.Foreign Earned Income Exclusion. (Obj. 1) From March 9, 2014 until August 15, 2015 Eva is sent to London on a temporary work assignment. Saints's salary during 2014 is $100, 000,of which $84,000 is earned while working in London. Her salary during 2010 is $125,000, of which $77,000 is earned while working in London.
a. How much of Eva's salary is taxed in 2014 and 2015? Assume the maximum foreign earned income exclusion for 2014 remains at $99,200.
b. Beside taking the excludion for foreign earned income ,what other option are available to Eva?
2. Group-Term Life Insurance. (Obj. 2) Remix, Inc. provides group-term life insurance coverage for each of its employees. The amount of coverage is equal to one year's salary. Remix pays 100%of the cost for the premiums. Tony and Ruth are employees of Remix. Wright is46 years old; his salary for the year is $85,000. Ruth is 52 years old; her salary for the year is$120,000. Ruth is a key employee of Remix; Tony is not.
a. Discuss the consequences to Tony and Ruth if Remix's plan does not favor key and highly paid employees.
b. Discuss the consequences to Tony and Ruth if Remix's plan favors key or highly paid employees.
3. Employer-Provided Health Insurance. (Obj. 2) Monix Enterprises provides its employees with health insurance coverage. During the year, it pays $7,500 of insurance premiums for each of its employees. Randy is a highly paid employee of Monix. Jois not one of Monix'shighly paid employees.
a. Discuss the consequences toRandy andJohn if the plan favors highly paid employees.
b. Discuss the consequences to Randy and John if the plan does not favor key or highly paid employees.
3. Bond Interest. (Obj. 1) A single taxpayer owns five different bonds listed below. During the current year she received the interest amounts shown. In the space provided for each bond, state the amount of interest to be included in or excluded from gross income. If excluded, state why.
Bond Issue Date Purchased Interest
A Racer Tannery 12-10-95 $ 276
B Village of Austin 7-1-97 800
C U.S. Treasury 2-1-99 600
D Matured Series EE U.S. Savings 11-1-98 1,000
E Kingsville School District 7-10-96 500
BondInterest Includable Interest Excludable and Why
A ___________________ _____________________________________
B ___________________ _____________________________________
C ___________________ _____________________________________
D ___________________ _____________________________________
E ___________________ _____________________________________
4. Scholarships. (Obj. 5) On August 1, 2014, Robert was granted a $5,400 scholarship for each of four academic years (nine months each year) to earn a degree from Birdhaven University. The scholarship grant includes $3,600 for tuition, fees, and books and $1,800 for room and board. Payment is one-ninth each month, starting September 10, 2014, and is made on the tenth of each month thereafter.
a. How much of the scholarship payments can Rob exclude from gross income in 20014?Why?
b. If Rob is not a degree candidate, is there any limitation to the amount of his exclusion? Explain.
5. Gross Income Exclusions. (Obj. 1) Indicate, by placing an X in the proper column, whethereach of the following items is includable in or excludable from gross income.
Item Includable Excludable
a. Life insurance proceeds paid because of insured's death
b. Workers' compensation for physical injury
c. Employee-paid health insurance premiums paid to a Non-key, not -highly paid employee
d. FMV of automobile won on television game show
e. Free parking in employer's lot (valued at $100/month)
f. A nonbankrupt taxpayer is forgiven of$1000 of credit Card debt.
g. Gold necklace received as a gift
h. Health resort fee paid for taxpayer by employer
6. Moving Expenses. (Obj. 3) Trey Wilson accepted a new job in Baltimore, Maryland, which is 778miles from his old home. In April he flew out to Baltimore to start his new job. His wife, Veronica remained at their old home so that the children could finish out the school year. In July, the Wilsons paid a moving company $6,200 to move their belongings to Baltimore. Veronica then drove the family out to their new home. Trey's airfare to Baltimore was $450. Veronica paid $151 for gas,$260 for lodging, and $110 for meals while en route to Baltimore. Trey's employer reimbursed him $5,000 for the cost of the moving company.
a. Compute the Wilsons' moving expense deduction.
b. Where is this amount reported on their return?
7. Student Loan Interest. (Obj. 5) Larry Matthews paid $580 interest on a qualify student loan. Larry fi les his tax returns as a single taxpayer. His modified AGI is $69,810.
Compute Larry deduction for AGI for the interest on his student loan.
8. Miscellaneous Questions. (Obj. 3)
a. Explain the deduction for the penalty on early withdrawal of savings.
b. What are the tax consequences of purchasing a new truck with funds from a Roth IRA for a taxpayer of age 50?
c.What are the tax consequences of purchasing a new truck with funds from a traditional IRA for a taxpayer of age 50?
Use the information below to compute the 2014 taxable income and tax liability for an unmarried taxpayer (age 52 with no dependents). Prepare an analysis showing each item and amount under the appropriate headings of (1) income, (2) gross income exclusions, (3) total gross income, (4)deductions for AGI, (5) AGI, (6) deductions from AGI, and (7) taxable income.
Cash Received
Interest on savings account $ 1,728
Gift of money from parent 1,000
Rent from farmland owned 30,000
Proceeds of life insurance policy received upon parent's death 40,000
Nondegree candidate fellowship, granted 8/20/14, of $450 per month
for four months 1,800
Net pay receivedGross salary of $33,000 less $7440 state
and federal income taxes,$2,046 social security taxes and
$479 Medicare Tax 23035
Employer's share of health insurance premiums, $4260 0
De minims employee fringe benefits valued at $25 0
Company provided parking costing employer $300/month for 12 months 0
Total cash received $97,563
Cash Payments
Expenses of farmland rental (real estate taxes) $ 1,750
Personal living expenses 26,600
Total cash payments $28,350