Chapter 5 Questions Flashcards
If a gift of property is excludible from taxation, so is future income generated by the gift.
False. While the gift of property is excluded from taxation, a gift’s future income is not.
Interest on all U.S. Treasury obligations is tax-exempt.
False. Interest from U.S. Treasury obligations is exempt from state taxes but not from federal taxes.
Amounts received from a worker’s compensation claim are excludible from gross income.
True. Worker’s compensation is one of the few sources of income that is excluded from gross income.
A taxpayer who personally purchases an individual disability income policy or major medical policy will not include the value of any benefits paid into gross income.
True. Only when an employer pays for these policies’ premiums are their benefits included in gross income.
A taxpayer who receives a jury award in a lawsuit for personal injuries of a physical nature can exclude the award from gross income if none of the award is for punitive damages.
True. Only punitive damage awards may be included in gross income.
Benefits received from an employer-financed medical expense plan are generally included in the employee’s gross income to the extent they provide reimbursement for the medical expenses of the employee’s dependents.
False. Benefits from medical expense plans are one of the few sources of income excluded from gross income.
Amounts paid for the loss of leg or the inability to grip an object are excludible from gross income.
True. Benefits paid as a result of extreme medical events are excluded from gross income.
If a self-funded medical reimbursement plan is discriminatory, all employees lose the plan’s tax advantages.
False. Only highly compensated employees lose the tax advantages.
Benefits paid under a qualified dependent care assistance program are excludible up to $5,000 (subject to a phaseout for high earners).
False. There is no phaseout for high earners.
An ABLE can be funded with the amount of the estate-gift exemption amount of $11M.
False. An ABLE can be funded up to the annual gift-tax exclusion amount of $15,000.
Distributions from an ABLE account will always be exempt from taxation.
False. Only distributions for qualified expenses are tax-exempt. Non-qualified distributions are subject to tax and to a 10% penalty.
All of a taxpayer’s Social Security benefits may be subject to taxation.
False. Only up to 85% of Social Security benefits may be subject to tax.
The taxation of Social Security benefits is determined by the level of the recipient’s provisional income.
True. Recipients with higher provisional income pay tax on a greater proportion of their Social Security benefits.
Investing in tax-exempt bonds minimizes the risk of Social Security benefits being subject to tax.
False. Tax-exempt bonds can contribute to provisional income, ultimately increasing the portion of Social Security that is subject to tax.
