Multiple choice questions:
1. A 58-year-old taxpayer retires this year and receives the first payment on an annuity that was purchased several years ago. The taxpayer’s investment in the annuity is $74,400, and the annuity pays $1,000 per month for the remainder of the taxpayer’s life. Based on IRS mortality tables, the taxpayer is expected to live another 20 years. If the taxpayer receives $4,000 in annuity payments in the current year, the nontaxable portion calculated using the simplified method is:
a. $0
b. $960
c. $1,240
d. $4,000
e. None of the above

2. Which of the following might result in life insurance proceeds that are taxable to the recipient?
a. A life insurance policy in which the insured is the son of the taxpayer and the beneficiary is the taxpayer
b. A life insurance policy transferred by a partner to the partnership
c. A life insurance policy transferred to a creditor in payment of a debt
d. A life insurance policy purchased by a taxpayer insuring his or her spouse
e. A life insurance policy purchased by a corporation insuring an officer

3. Which of the following gifts would probably be held to be taxable to the person receiving the gift?
a. One thousand dollars given to a taxpayer by his or her father
b. A trip to Mexico given to a purchasing agent by one of the company’s suppliers
c. A house given to a taxpayer by a friend
d. A Mercedes-Benz given to a taxpayer by his cousin
e. An interest in a partnership given to a taxpayer by his or her uncle

4. Which of the following items would be includable in the gross income of the recipient?
a. Insurance payments for medical care of a dependent child
b. Insurance payments for loss of the taxpayer’s sight
c. Season tickets given by a salesperson to a customer
d. Interest from bonds issued by the state of Texas
e. Lodging provided to a worker on a remote oil rig

5. For 2014, the maximum percentage of Social Security benefits that must be included in a taxpayer’s gross income is:
a. 85%
b. 75%
c. 65%
d. 50%
e. 25%

6. Generally, modified adjusted gross income (MAGI) is adjusted gross income (without Social Security benefits):
a. Less tax-exempt interest
b. Less personal and dependency exemptions
c. Less itemized deductions
d. Less tax-exempt interest plus any foreign income exclusion
e. Plus tax-exempt interest income