Question

Elwood had to retire early because of a job-related injury. During the current year, he receives $10,000 in Social Security benefits. In addition, he receives $6,000 in cash dividends on stocks that he owned and $8,000 in interest on tax-exempt bonds. Assuming that Elwood is single, what is his gross income if

a. He receives no other income?

b. He also receives $11,000 in unemployment compensation?

c. He sells some land for $80,000? He paid $45,000 for the land.

Answer 1

Information Given -

Social Security benefits = $10000.

Cash dividends on stocks = $6000.

Interest on tax-exempt bonds = $8000.

.

(a) -- He receives no other income?

Answer -

	Amount	Explanation
Elwood's Gross Income	$6000	Cash dividends of $6000 on stocks is only included in his gross income. Interest on tax-exempt bonds is excluded from his gross income. None of the $10000 of Social Security benefits are taxable, because his modified adjusted gross income is less than the $25000 base amount.

.

(b) -- He also receives $11000 in unemployment compensation?

Answer -

	Amount	Explanation
Elwood's Gross Income	$19500	His taxable Social Security benefits are the lesser of: (a) 50 percent of the Social Security benefits ($10000*50% = $5000), or (b) 50 percent of [$25000 modified AGI + $5000 (50 percent of Social Security benefits) - $25000] = $2500). Thus, his taxable Social Security benefits are $2500. Elwood's gross income is $19500 ($6000 + $11000 + $2500).

.

(c) -- He sells some land for $80000? He paid $45000 for the land.

Answer -

	Amount	Explanation
Elwood's Gross Income	$49500	His taxable Social Security benefits are $8500 ($10000 * 85%) Elwood's gross income is $49500 [$6000 + $8500 + ($80000 - $45000)]