1. Indicate whether each of the items listed below would be included in or excluded from gross income for the 2022 tax year.

a. Welfare payments b. Commissions c. Hobby income d. Scholarships for room and board e. $300 set of golf clubs, an employee award for length of service f. Severance pay. g. Ordinary dividend of $50 h. Accident insurance proceeds received for personal bodily injury i. Inheritances. j. Gifts. k. Tips and gratuities

2. Jane is a roofing contractor. Janes friend needed a new roof but did not have the cash to pay. Janes friend instead paid with a used truck that Jane could use in her roofing business. The truck had originally cost the friend $17,500 but it was gently used and only worth $6,000. Jane did not need the truck and ended up selling it to a used car dealer for $5,200 a few months later. Explain what amount of gross income must recognize as a result of the truck payment and why.

3. Larry is a tax accountant and Sheila is a hairdresser. Larry prepares Sheilas tax return for free, and Sheila agrees to style Larrys hair six times for free in return for the tax return. The value of the tax return is approximately $300 and the hair styling work is approximately $300.a. How much of the $300 is includable income to Larry? Why? b. How much of the $300 is includable income to Sheila? Why?

4. Kerry and Jim have a successful marijuana farm in the woods around Humboldt County, California. Growing marijuana is illegal for federal purposes. Are Kerry and Jim required by law to report the income from their farm on their tax return? Why?

5. Kristen, a single taxpayer, receives two 2022 Forms W-2 from the two employers she worked for during the year. One Form W-2 lists her wages in Boxes 1, 3, and 5 as $ 18,700. Her other employers Form W-2 has $43,000 in Box 1 but $46,500 in both Box 3 and Box 5. Kristen participated in the second employers 401(k) plan. She also received health care from her second employer. Lastly, her second employer provided $ 30,000 of group term life insurance to Kristen. a. What amount should Kristen report as taxable wages in 2022? b. What could explain the difference between Box 1 wages and Boxes 3 and 5 on her second employers W-2?

6. List four behavioral factors that could be used to classify a worker as either an em-ployee or an independent contractor and provide a brief example.

7. Skyler is covered by his companys health insurance plan. The health insurancecosts his company $9,500 a year. During the year, Skyler is diagnosed with a seriousillness and health insurance pays $100,000 for surgery and treatment. How much ofthe insurance and treatment payments are taxable to Skyler?

8. Malin is a married taxpayer and has three dependent children. Malins employer of-fers health insurance for employees and Malin takes advantage of the benefit for herentire family (her spouses employer also offers health insurance but they opt out).During the year, Malin paid $1,200 toward her familys health insurance premiumsthrough payroll deductions while the employer paid the remaining $9,200. Malinsfamily visited health care professionals numerous times during the year and madetotal co-payments toward medical services of $280. Malins daughter had knee surgerydue to a soccer injury and the insurance company paid the hospital $6,700 directlyand reimbursed Malin $400 for her out-of-pocket health care expenses related to thesurgery. Explain how much gross income should Malin recognize related to her healthinsurance and why?

9. For each of the following, explain whether the value of the meals provided to thetaxpayer are part of the taxpayers gross income and why:a. Milton is a nurse whose employer provided meals for him on the employerspremises, since he is given only 30 minutes for lunch.b. Mary is a San Diego ambulance driver. The city provides Mary with meals whileshe is working so she will be available for emergencies.c. Indigo is the head of security at a casino. The casino operator frequently providesmeals from the casino buffett to Indigo as a gesture of goodwill for the great jobshe is doing.d. Kerrie works at Sante Fe Memorial Hospital as an administrative assistant.Sante Fe operates a heavily subsidized on-site cafeteria because the majority ofSante Fe employees are required to eat lunch on the premises to be available foremergencies. Kerries job description has no such requirement and she is free toeat anywhere during a typical lunch hour. Kerrie likes the cafeteria and generallyeats her meals there anyway. Kerrie estimates the value of her 2022 meals at the cafeteria as $2,750. Her records show she paid $400 for these meals.

10. Linda and Richard are married and file a joint return for 2022. During the year, Linda,who works as an accountant for a national airline, used $2,100 worth of free passes for travel on the airline; Richard used the same amount. Linda and Richard also used $850 worth of employee vouchers for hotel rooms at the hotel chain that is also owned by the airline. Richard is employed at State University as an accounting clerk. Under a tuition reduction plan, Richard saved $4,000 in tuition fees during 2022. He is taking classes toward a masters degree in business at night while still working full-time. Richard also had $30 worth of personal typing done by his administrative assistant at the University. What is the amount of fringe benefits that should be in-cluded in Linda and Richards gross income on their 2022 tax return?

11. Ellens tax client, Tom, is employed at a large company that offers health care flexible spending accounts to its employees. Tom must decide at the beginning of the year whether he wants to put as much as $2,850 of his salary into the health care flexible spending account. He expects that he will have to pay for at least $8,000 of medicalexpenses for his family during the year since his wife is seeing a psychiatrist every week and his daughter and son are both having their teeth straightened. Tom does notitemize deductions. Should Ellen recommend that Tom put the maximum amount in his health care flexible spending account, and if so, why?