Question

Eric and Bree are married. Eric worked as a construction worker, but was recently hurt on the job and is now at home recovering from his injuries. Bree is a self-employed party planner. Eric and Bree reported the following financial information pertaining to their 2019 activities:

a. Eric received personal injury payments in the amount $75,000. $45,000 of those payments were compensation for his injury; $30,000 of those payments were punitive damages because Urban Designs, Inc. was found to be partially responsible for the accident.

b. Eric has a disability insurance policy that his employer provided as part of his non-taxable fringe benefits. Eric's disability payments from this policy were equal to $22,000 in 2019.

c. In addition to her consultation business, Bree is a 10% owner of Invitations-R-Us, a partnership. The company reported ordinary business income for the year of $70,000. Bree acquired her ownership in Invitations-R-Us last year.

d. Bree's party planning business received $40,000 cash is 2019. In addition, customers owed her $3,700 at year end. Bree accounts for her business activities using the cash method of accounting.

Which of the following items is excluded from Eric and Bree's gross income? (4 pts.)

Item b

Item a - $30,000

Item d - $3,700

item d $40,000

Calculate Eric and Bree's gross income for 2019 assuming they file married filing jointly.

Answer 1

The total gross income for Eric and Bree would be;

75000 + 22000 + 7000 + 40000 = 144000

The amount of 3700 is excluded from this calculation since it has not yet been received and we do not have any concrete information about the financial year Bree follows for her business.