Question

Mr. and Mrs. Sam Morris retired on February 10, 2020, and call you in for tax service. Both Sam and his wife Sarah have worked for many years. Sam is 65 years of age and his wife is 63.

Facts:
Dependent child: Age 21
Social security benefits	9700
Salaries:
Sam (January 1-February 10)	8850
Sarah (January 1-February 10)	13160
Interest income:
Port authority of N.Y. bonds	290
Interest from bank deposits	140
Corporate bonds	893
Highway bonds of Ohio	104
Dividend income:
Microsoft common stock	3760
General electric common stock	1160
AGA Ltd. Of England	1130
Net rental income	4723

a

One of their tenants moved out on July 14, 2020, and Sam determines that they had damaged the stove, and therefore returned only $51 of their $225 security deposit.

The Morrises’ daughter borrowed $10,000 two years ago to purchase a new automobile. She has made payments to her parents and on September 1, 2020, only $2,500 was still outstanding on the loan. On their daughter’s birthday, they told her she no longer had to make payments.

Sam was Vice president of a very large corporation. As part of his fringe benefit package, the corporation purchased for him $50,000 of group-term life insurance. The corporation continued to pay for his life insurance even after retirement.

The Morisses’ three children gave their parents a gala retirement party. Gifts valued at over $920 were received by the couple.

In October, Mrs. Morris entered a contest being run by a local bank. She submitted drawings for a bank logo. Her drawing was selected and she received $424.

Many years ago, Sam purchased an annuity policy for $9721. Starting on March 3, 2020, he began receiving lifelong monthly payments of $62.

The Morrises’ 21-year-old daughter is in college. She worked during the summer and earned $2,500. Interest on her savings accounts amounted to $500. Her parents paid for the college tuition of $4,000.

The Morisses have itemized deductions of $20,000.

How much of the annuity income is taxable to the Morrises?

Answer 1

Answer to Question:

Calculation of Morrises Taxable Income:

Particulars	Workings	Amount ($)
1.Income from salary	salary of both sam and sarah (8850 + 13,160)	22,010
2.Income from interest on bonds	(290 + 140 + 893+ 104)	1,427
3.Income from Rent		4,723
4.Security amount not refunded	Security deposit- returned amount (225 - 51)	174
5. Gift received		920
6. Award received		424
7. Annuity received	(9,721 * 62)/1,000	603
8. Daughter Income		2,500
9. Total Income		$ 32,781
Less: Deduction		$ 20,000
Taxable Income		$ 12,781