In 2019, Aurora received a $25,000 bonus computed as a percentage of profits. In 2020, Aurora’s...
In 2019, Aurora received a $25,000 bonus computed as a percentage of profits. In 2020, Aurora’s employer determined that the 2019 profits had been incor-rectly computed, and Aurora had to refund the $8,000 in 2020. Assume that Aurora was in the 35% tax bracket in 2019 but in the 12% bracket in 2020.
a. In 2019, how much is Aurora required to include in income?
b. In 2020, what is the amount of the deduction Aurora can claim? What is the reduction in taxes for 2020 as a result of the deduction?
Homework Answers
Part A
Aurora required to include in income = $25000 (bonus computed as a percentage of profits)
Part B
Amount of the deduction Aurora can claim = $8000 (amount to be refunded can be claimed.
Reduction in taxes for 2020 as a result of the deduction= 8000*35% = $2800
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