Question

Earned and Unearned Income, Transfers from Others (LO. 3) Elwood had to retire early because of a job-related injury. During the current year, he receives $9,600 in Social Security benefits. In addition, he receives $6,000 in cash dividends on stocks that he owns and $7,900 in interest on tax-exempt bonds. Assuming that Elwood is single, what is his gross income if a. he receives no other income? $ x b. he also receives $10,600 in unemployment compensation? $ c. he sells some land for $79,600 and he paid $44,300 for the land? $|| Feedback Check My Work Under the capital recovery concept, it could be said that half of each payment received from Social Security represents a return of the taxpayer's investment and is therefore excluded, much like annuities. But for lower-income taxpayers, a lesser-of formula is applied to determine the amount to include in gross income.

Answer 1

Hi

Let me know in case you face any issue:

Answers are highlighted in yellow: Solution: Cash Dividend Social security benefit Gross income (Tax free below MAGI $25,000) $ 6,000 $ - $ 6,000 b) Cash Dividend $ 6,000 Social security benefit: MAGI (6000+7900+10600)+(9600*50%) 29300 Less: Threshold 25000 Excess amount 4300 Taxable Social security benefit: Lesser of 50% of SSB or Excess amount (4300*50%) $ 2,150 Unemployment compensation $ 10,600 Gross income $ 18,750 c) $ 6,000 54000 34000 20000 Cash Dividend Social security benefit: MAGI (6000+7900)+(79600-44300)+(9600*50%) Less: Threshold Excess amount Lesser of (1) 85% of Social Security benefits or: (2) 85% of excess income, plus the lesser of first step formula or 50% of benefits-$6,000 Taxable Social Security benefits Capital gain (79600-44300) Gross income 8160 (9600*85%) (20000*85%)+(54000-25000)*50% or 4800 21800 $ 8,160 $ 35,300 $ 49,460