Question

Required information [The following information applies to the questions displayed below.) What amounts are included in gross income for the following taxpayers? (Leave no answers blank. Enter zero if applicable.)

a. Janus sued Tiny Toys for personal injuries from swallowing a toy. Janus was paid $36,500 for medical costs and $282,500 for punitive damages.

Amount included in the gross income=

c. Ajax published a story about Pete and as a result Pete sued Ajax for damage to his reputation. Ajax lost in court and paid Pete an award of $23,250.

Amount included in the gross income=

Answer 1

A) Amount included in gross income = $ 282,500

Explanation : Medical costs for physical injuries is not taxable and excluded from gross income. Because such injuries is physical and visible from outside . But punitive damages is a punishment and taxable in the hand of recipient and included in gross income

Amount included in gross income = $ 23,250

Explanation : compensation for mental or emotional distress caused by non physical damage is taxable and included in gross income. Because it is not physically visible from outside .