Federal Income Taxation HW#5 (Case Study)

Federal Income Taxation HW#5
Name Course Instructor Date
Chapter 5:
1LO.2 Fred specified in his will that his nephew John should serve as executor of Fred’s estate. John received $10,000 for serving as executor. Can John exclude the $10,000 from his gross income? Explain.
No, he cannot exclude the $10,000 from his gross income. John received $10,000 as compensation for services and this, must be included in his gross income.
6 LO.2 Billy fell off a bar stool and hurt his back. As a result, he was unable to work for three months. He sued the bar owner and collected $100,000 for the physical injury and $50,000 for the loss of income. Billy also collected $15,000 from an income replacement insurance policy he purchased. Amber was away from work for three months following heart bypass surgery. Amber collected $30,000 under an income replacement insurance policy purchased by her employer. Are the amounts received by Billy and Amber treated the same under the tax law? Explain.
No. Billy's award of $150,000 can be excluded from gross income as it is the result of bodily individual injury, even as $50,000 was meant to substitute the income he would have earned and would have been subject to tax. The $15,000 is also excluded from Billy's gross income as a recovery of his cost of the policy. It is not taxable even as the total benefit received may exceed the premiums paid. Amber is taxed on the $30,000 she received under the income replacement insurance policy since the employer paid out the premiums
8 LO.2 Holly was injured while working in a factory and received $12,000 as workers’ compensation while she was unable to work because of the injury. Jill, who was self-employed, was also injured and unable to work. Jill collected $12,000 on an insurance policy she had purchased to replace her loss of income while she was unable to work. How much are Holly and Jill each required to include in their gross income?
Gross income is all income from whatever source. Holly can exclude the $12,000 o workers' compensation benefits from her gross income. Jill can exclude the $12,000 she received for lost income because as it was from an insurance policy that Jill had purchased.
12 LO.2, 5 Wilbur has been offered a job at a salary that would put him in the 24% marginal tax bracket. In addition to his salary, he would receive health insurance coverage. Another potential employer does not offer health insurance but has agreed to match the first offer on an after-tax and insurance basis. The cost of health insurance comparable to that provided by the other potential employer is $9,000 per year. How much more in salary must the second potential employer pay so that Wilbur’s financial status will be the same under both offers?
The additional before-tax salary to purchase the health insurance for $9,000, when the marginal tax rate is 24%, the employer’s after-tax cost is $ 11, 842.11 determined as [$9,000/ (1 − .24)].This will cover the cost of purchasing health care. This is based on the assumption that Wilbur will deduct the insurance as a medical expense when considering the adjusted gross income floor and standard deduction.
25 Jarrod receives a scholarship of $18,500 from East State University to be
used to pursue a bachelor’s degree. He spends $12,000 on tuition, $1,500 on books and supplies, $4,000 for room and board, and $1,000 for personal expenses. How much may
Jarrod exclude from his gross income
“Payments or benefits received by a student at an educational institution may be (1) compensation for services, (2) a gift, or (...