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 $10,200 in Social Security benefits. In addition, he receives $5,800 in cash dividends on stocks that he owns and $8,200 in interest on tax-exempt bonds. Assuming that Elwood is single, what is his gross income if a. he receives no other income? $ 6,000 b. he also receives $11,200 in unemployment compensation? $ 19,500 X c. he sells some land for $80,400 and he paid $44,000 for the land? $ 49,500 X 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

a. If he receives no other Income

Gross Income would include all his earnings = Social security benefits + Dividends + Interest on tax exempted Bonds

= $ ( 10,200 + 5,800 + 8200 )

= $24,200.

b. If he also receives $11,200 in unemployment copensation

Gross Income = Social security benefits + Dividends + Interest on tax exempted Bonds + Unemployment compensation

= $ ( 10,200 + 5,800 + 8200 + 11,200 )

= $35,400.

c. If he sells some Land for $80,000 and paid $44,000Gross Income =

Social security benefits + Dividends + Interest on tax exempted Bonds + Unemployment compensation + Sale Value of Land

= $ ( 10,200 + 5,800 + 8200 + 11,200 + 80,000 )

= $115,400.

We have to calculate gross Income in all cases so all his receipts are added. Taxes will be levied as per the norms of the government.

Amount paid for Land is deducted as it was capital expenditure incurred in the year of acquisition. So the amount received from the sale of land is liable for tax as it is a capital Income or receipt.