Question

I need some help and clarification on this assignment.  

Mya Lucky Day was unable to work in 2018 (thanks to a workplace injury sustained last year); nonetheless, she still amassed a material amount of gross income in 2018 from various sources. Mya has asked for your assistance in determining how much of the $511,830 gross income she realized in 2018 must also be recognized as taxable income on her 2018 individual income tax return. She also needs help with the proper presentation of the recognized income amounts on her Form 1040 and Schedule 1.

Sources of Income	Amount Realized	Amount Recognized	Source Document	Additional Details
BINGO grand prize winner	1,700	1680	Form W-2G	Paid $20 for BINGO card
Annual neighborhood poker tournament	2,500	2350	None	Paid $150 for buy-in
Alimony received	36,250	36250	Divorce decree	Ties to legally binding 2017 divorce settlement agreement
Child support received	48,000	48000	Divorce decree	Ties to legally binding 2017 divorce settlement agreement
Disability insurance proceeds	22,200	16650	Form 1099-R	Mya paid 25% of the monthly disability insurance premiums using after-tax dollars; Mya’s employer covered the remaining 75%
Proceeds from homemade candle sales	480	480	None	Paid $525 for candle-making supplies (candle-making is a hobby for Mya)
Worker’s compensation	17,500	17500	Employment agreement	Amounts were received from a state-sponsored workers’ compensation plan
Lawsuit proceeds – lost wages	41,200		Legal settlement	Lawsuit was related to a physical injury
Lawsuit proceeds – emotional distress	15,000		Legal settlement	Lawsuit was related to a physical injury
Lawsuit proceeds – punitive damages	75,000		Legal settlement	Lawsuit was related to a physical injury
Birthday card money	2,000		None	Birthday cash from Great-Aunt Tilda to Mya, her favorite niece
Life insurance proceeds	250,000		Insurance policy	Proceeds received when poor Great-Aunt Tilda passed away later in the year (Mya was her beneficiary)
TOTAL INCOME	$511,830	$132410

379420                 374910

Answer 1

The following sources of income will be taxable under the US Federal Tax :

1. Bingo Grand Prize : 1680 ( because documentation of expense is available)

2. Poker Tournament : 2,500

3. Alimony : 36,250

4. Disability Insurance Claim : 16,650 (Claim corresponding to premium paid by employer is taxable i.e 75%)

5. Proceeds from selling home-made candles : 0 (Net earning is zero)

6. Lawsuit Proceeds - Lost wages : 41,200

7. Lawsuit Proceeds - Emotional distress : 15,000

8. Lawsuit Proceeds - Punitive damages : 75,000

Total recognised income taxable is $ 188,280