Question

Ken is 64 years old and unmarried. He retired at age 57 when he sold his business, Understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken files as a single taxpayer. 1. Ken won $1,400 in an illegal game of poker (the game was played in Utah, where gambling is illegal). 2. Ken sold 1,000 shares of stock for $29 a share. He inherited the stock two years ago. His tax basis (or investment) in the stock was $30 per share. 3. Ken received $25,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 20 years, for $210,000. 4. Ken received $11,000 in disability benefits for the year. He purchased the disability insurance policy last year. 5. Ken decided to go back to school to get a degree in European history. He received a $500 cash scholarship to attend. He used $300 to pay for his books and tuition, and he applied the rest toward his new car payment. 6. Ken's son, Mike, instructed his employer to make half of his final paycheck of the year payable to Ken as a gift from Mike to Ken. Ken received the check on December 30 in the amount of $1,300. 7. Ken received a $610 refund of the $3,600 in state income taxes his employer withheld from his pay last year. Ken claimed $12,350 in itemized deductions last year (the standard deduction for a single filer was $12,000). 8. Ken received $30,000 of interest from corporate bonds and money market accounts. A. B. Determine Ken's gross income (show your work)! Complete page 1 of Form 1040 (through line 7b), and schedule 1 for Ken. ces) Focus

Answer 1

Answer:

gross Income is the total income earned by an individual before deductions and taxes

Computation of Ken's Gross Income

Sl No	Particulars	Amount	Remarks/reason
1.	Illegal Income earned by playing poker	$1400	Source of income earned illegally or legally will be taxable
2.	loss incurred from the sale of shares	$1000	$1000 *(30-29)= 1000*1=$1000
3.	Annuity Income	$14500	$25000- (210000/20)=25000-10500= $14500
4.	Disability Benefits	-	income received from disability benefits are exempted from the payment of Income Tax
5.	Scholarship income ($500-300)	- $200	Scholarship amount of $300 to be paid for his books and tuition is exempted but balance amount $ 200 is taxable since it is used for the new car payment
6.	Pay check	-	Exempted as per income tax rule tax , income is taxed to the tax payer who earned income
7.	Income tax refund........(1)	$350	Refund received is taxable
8.	Interest Income	$30000	Interest Income is also taxable
	Gross Total Income	$47450

Working notes:

Income tax refund:

Overpayment $610- refunded = $12350

Less: Standard Deduction = $12000

Total-- Tax benefit = $350......................(1)