[removed]e.None of these choices are correct.
Albert had a terminal illness which required almost constant nursing care for the remaining two years of his estimated life, according to his doctor. Albert had a life insurance policy with a face amount of $100,000. Albert had paid $25,000 of premiums on the policy. The insurance company has offered to pay him $80,000 to cancel the policy, although its cash surrender value was only $55,000. Albert accepted the $80,000. Albert used $15,000 to pay his medical expenses. Albert made a miraculous recovery and lived another 20 years. As a result of cashing in the policy:
[removed]a.Albert must recognize $65,000 ($80,000 – $15,000) of gross income.
[removed]b.Albert must recognize $55,000 of gross income, but he has $15,000 of deductible medical expenses.
[removed]c.Albert is not required to recognize any gross income because of his terminal illness.
[removed]d.Albert must recognize $40,000 ($80,000 – $25,000 – $15,000) of gross income.
[removed]e.None of these choices are correct.
Tonya is a cash basis taxpayer. In 2016, she paid state income taxes of $8,000. In early 2017, she filed her 2016 state income tax return and received a $900 refund.
[removed]a.If Tonya itemized her deductions in 2016 on her Federal income tax return, she must amend her 2016 Federal income tax return and use the standard deduction.
[removed]b.If Tonya itemized her deductions in 2016 on her Federal income tax return and her itemized deductions exceeded the standard deduction by at least $900, the refund will not affect her 2017 tax return.
[removed]c.If Tonya itemized her deductions in 2016 on her Federal income tax return and her itemized deductions exceeded the standard deduction by more than $900, she must recognize $900 income in 2017 under the tax benefit rule.
[removed]d.If Tonya itemized her deductions in 2016 on her Federal income tax return, she should amend her 2016 return and reduce her itemized deductions by $900.
[removed]e.None of these choices are correct.
Marsha is single, had gross income of $50,000, and incurred the following expenses:
| Charitable contribution | $2,000 |
| Taxes and interest on home | 7,000 |
| Legal fees incurred in a tax dispute | 1,000 |
| Medical expenses | 3,000 |
| Penalty on early withdrawal of savings | 250 |
Her AGI is:
[removed]a.$49,750
[removed]b.$39,700
[removed]c.$39,750
[removed]d.$40,000
[removed]e.None of these choices are correct.
During 2015, the first year of operations, Silver, Inc., pays salaries of $175,000. At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2016. What is the amount of the deduction for salary expense?
[removed]a.If Silver uses the cash method, $0 in 2015 and $195,000 in 2016.
[removed]b.If Silver uses the accrual method, $175,000 in 2015 and $20,000 in 2016.
[removed]c.If Silver uses the accrual method, $195,000 in 2015 and $0 in 2016.
[removed]d.If Silver uses the cash method, $175,000 in 2015 and $0 in 2016.
[removed]e.None of these choices are correct.
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