Accounting Methods and Gross Income

Question 1

What is considered the “nontaxable part” of a taxpayers’ annuity payment?

Answer 1

The investment in the contract divided by the number of anticipated monthly payments

i.e. Taxpayers are permitted to recover the cost of the annuity (the price paid) tax free

Question 2

HOW do you calculate the “Basis of Recovery” for an annuity?

Answer 2

($Cost of the Annuity ÷ Number of (Expectancy) Years ÷ 12 months)

Question 3

How do you calculate the Gross Profit Percentage under the percentage-of-completion method?

Answer 3

By taking the actual costs for the tax year and dividing them by the to total expected costs to complete the project

i.e. ($ Actual costs ÷ $ Total costs to Complete)

Question 4

HOW are “Bartered services or Goods” included in gross income?

Answer 4

AT the fair market value of the item(s) received in exchange for the services

Question 5

What are considered excludeable item(s) from Gross Income?

Answer 5

• Amounts received as a scholarship from a government or other qualified organization
• State Scholarships
• Loans (e.g. from financial aid office)
• Cash support from parents (i.e. a Gift)

Question 6

HOW should “Gifts” received from an employer be reported in an income tax return?

Answer 6

As Compensation

i.e. Voluntary transfers from employer to employee are presumed to be compensation, NOT gifts

Question 7

True or False.

The installment method applies to Gains and Losses

Answer 7

FALSE.

The installment method applies ONLY to gains

Question 8

HOW do you calculate Cost of Goods Sold for purchased inventory?

Answer 8

Purchase price + Handling charges - Cash discounts

Question 9

HOW do you calculate Cost of Goods Sold for purchased merchandise?

Answer 9

Purchase price - Allocable trade discount x (Percentage of inventory Sold)

Question 10

What is the “Base Amount” (BA) threshold taxable for Social Security Benefits (Married Filing Jointly)?

Answer 10

$32,000

Note: It is $0 for Married Filing Separately and $25,000 for “All Others”

Question 11

What is the “Adjusted Base Amount” (ABA) threshold taxable for Social Security Benefits (Married Filing Jointly)?

Answer 11

$44,000

Note: It is $0 for Married Filing Separately and $34,000 for “All Others”

Question 12

HOW much of your Social Security Benefits (SSB) are included in your Gross Income if your “Provisional Income” (PI) is Less Than your Base Amount (BA)?

Answer 12

None.

i.e. There is NO Inclusion

Question 13

HOW much of your Social Security Benefits (SSB) are included in your Gross Income if your “Provisional Income” (PI) is Greater Than your “Base Amount” (BA) but Less Than your “Adjusted Base Amount” (ABA)?

Answer 13

UP to 50% of your Social Security Benefits

i.e. Will be included in your Gross Income

Question 14

HOW much of your Social Security Benefits (SSB) are included in your Gross Income if your “Provisional Income” (PI) is Greater Than your “Adjusted Base Amount” (ABA)?

Answer 14

UP to 85% of your Social Security Benefits

i.e. Will be included in your Gross Income

Question 15

HOW much Foreign-Earned Income can a taxpayer exclude from their Gross Income?

Answer 15

UP to $103,900

NOTE: Must be a resident of one or more foreign countries for the (entire) tax year or 330 days consecutively for 12-month period