Daniel is a cash-basis taxpayer.

Which of the following items must be included in his gross

income calculation for the current year?

A. Earnings from Series EE Bonds

B. Business income that was earned on Dec. 15 of current year. The client mailed a check on
December 29 of the current year. The check arrived in Daniel's mailbox on January 2nd of the
following year.
C. Business sale to customer made on October 15th. Daniel extended the payment date, and
the client has yet to pay the sales price.
D. Original issue discount on the bonds for the current year.
Answer: D

Earnings on EE bonds can be delated until redeemed or matured. Since he is a cash-basis

taxpayer, Daniel does not have to include the business income until the year in which the check
is received. The account receivable will not be included until paid. The original issue discount
must be included in the current year's income.

Ashley had the following income and expenses in the current year:

Salary - $60,000
Alimony received - $20,000. This is her third year of alimony. the first year she received
$100,000 and the second year she received $50,000.
IRA contribution - $4,000
Casualty loss - $8,000

What is Ashley's AGI?

A. $0
B. $3,500
C. $68,000
D. $80,000
Answer: B

The alimony will be included in the gross income. In this case she will have alimony recapture in
year 3. because of the greater-than-$15,000 decrease between years 1 and 2 and years 2 and
3. The recapture short-cut formula is R3 = P1 + P2 - 2(P3) - $37,500. Therefore, R3 = $100,000
+ $50,000 - $40,000 - $37,500 = $72,500.

Salary of $60,000 + alimony received of $20,000 - alimony recapture of $72,500 - IRA

contribution of $4,000 = $3,500.

The child support is not included and the casualty loss is an itemized deduction.