Summary: Rush Income
CHAPTER 4--GROSS INCOME: CONCEPTS AND INCLUSIONS
As a general rule: Only I and II are true.
I. Income from property is taxed to the person who owns the property.
II. Income from services is taxed to the person who earns the income.
III. The assignee of income from property must pay tax on the income.
IV. The person who receives the benefit of the income must pay the tax on the income.
Betty purchased an annuity for $24,000 in 2012. Under the contract, Betty will receive $300 each month for the rest of her life. According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment. If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th …show more content…
It contracts to provide service to homeowners once a month under a one-, two-, or three-year contract. On April 1 of the current year, the company sold a customer a one-year contract for $120. How much of the $120 is taxable in the current year if the company is an accrual basis taxpayer. If the $120 is payment on a two-year contract, how much is taxed in the year the contract is sold and in the following year?If the $120 is payment on a three-year contract, how much is taxed in the year the contract is sold and in the following year? Revenue Procedure 2004-34 permits the accrual basis taxpayer to amortize the prepaid income for the first year under the contract. However, the balance of the unearned income must be recognized in the tax year following the year of receipt. In the case of a contract sold on April 1 that was for services over the twelve-month period beginning on that date, the taxpayer would recognize 9/12 of the income in the year of sale, and the remaining balance (3/12) in the following year.In the case of a contract sold on April 1 that was for services over the 24-month period beginning on that date, the taxpayer would recognize 9/24 of the income in the year of sale and the remaining balance (15/24) in the following year. In the case of a contract sold on April 1 that was for services over the 36-month period beginning on that date, the taxpayer would recognize 9/36 of the income …show more content…
When this is invested in a CD that yields 3.6% [(1 – .28)(.05)] after-tax for five years, the compounded amount will be $42,962 ($36,000 ´ 1.1934). If a lump-sum is received in five years, it will be subject to tax. Therefore, Katherine should receive at least $59,669 [$42,962/(1 – .28)].
Margaret made a $90,000 interest-free loan to her son, Adam, who used the money to retire a mortgage on his personal residence and to buy a certificate of deposit. Adam’s only income for the year is his salary of $35,000 and $1,400 interest income on the certificate of deposit. The relevant Federal interest rate is 8% compounded semiannually. The loan is outstanding for the entire year.
a. Based on the above information, what is the effect of the loan on Margaret’s gross income for the year? Margaret’s interest income from the loan is $1,400, which is equal to Adam’s net investment income for the year. Thus, Margaret’s
As a general rule: Only I and II are true.
I. Income from property is taxed to the person who owns the property.
II. Income from services is taxed to the person who earns the income.
III. The assignee of income from property must pay tax on the income.
IV. The person who receives the benefit of the income must pay the tax on the income.
Betty purchased an annuity for $24,000 in 2012. Under the contract, Betty will receive $300 each month for the rest of her life. According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment. If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th …show more content…
It contracts to provide service to homeowners once a month under a one-, two-, or three-year contract. On April 1 of the current year, the company sold a customer a one-year contract for $120. How much of the $120 is taxable in the current year if the company is an accrual basis taxpayer. If the $120 is payment on a two-year contract, how much is taxed in the year the contract is sold and in the following year?If the $120 is payment on a three-year contract, how much is taxed in the year the contract is sold and in the following year? Revenue Procedure 2004-34 permits the accrual basis taxpayer to amortize the prepaid income for the first year under the contract. However, the balance of the unearned income must be recognized in the tax year following the year of receipt. In the case of a contract sold on April 1 that was for services over the twelve-month period beginning on that date, the taxpayer would recognize 9/12 of the income in the year of sale, and the remaining balance (3/12) in the following year.In the case of a contract sold on April 1 that was for services over the 24-month period beginning on that date, the taxpayer would recognize 9/24 of the income in the year of sale and the remaining balance (15/24) in the following year. In the case of a contract sold on April 1 that was for services over the 36-month period beginning on that date, the taxpayer would recognize 9/36 of the income …show more content…
When this is invested in a CD that yields 3.6% [(1 – .28)(.05)] after-tax for five years, the compounded amount will be $42,962 ($36,000 ´ 1.1934). If a lump-sum is received in five years, it will be subject to tax. Therefore, Katherine should receive at least $59,669 [$42,962/(1 – .28)].
Margaret made a $90,000 interest-free loan to her son, Adam, who used the money to retire a mortgage on his personal residence and to buy a certificate of deposit. Adam’s only income for the year is his salary of $35,000 and $1,400 interest income on the certificate of deposit. The relevant Federal interest rate is 8% compounded semiannually. The loan is outstanding for the entire year.
a. Based on the above information, what is the effect of the loan on Margaret’s gross income for the year? Margaret’s interest income from the loan is $1,400, which is equal to Adam’s net investment income for the year. Thus, Margaret’s