Question

1. Steve files head of household. In 2020, he received $23,000 in social security benefits, $10,000 in retirement income, and $4,000 in interest and dividend income. Steve's taxable social security benefits are __________.

A. $0

B. $250

C. $11,500

D. $19,550

2. Aroon (25) has a loan from a qualified lender that he used to pay his college tuition. The lender cancelled the $19,743 balance of his loan in 2020. The cancelled debt may be excluded if any of the following are true EXCEPT he:

A. Agrees to work for ten years as a nurse at a state hospital.

B. Became permanently disabled.

C. Died.

D. Is unemployed for more than one year.

Answer 1

1.)

Answer: C) $11,500.. The taxability portion of Social Security benefits depends on Provisional income. Provisional Income is calculated by adding total income (including tax-exempt interest income) to the half of the amount of annual Social Security benefit. Therefore, Provisional Income - Total income + (Social Security benefit x 50%) The taxable portion of Social Security benefit received is as follows: Filing Status Provisional income Taxable portion of Social security benefit $25,000 or less 0% Social security benefits x 0% Head of household $25,001 to $34,000 Upto 50% Social security benefits x 50% Exceeds $34,000 Upto 85% Social security benefits x 85% Calculation of provisional income Gross income (Excluding Social Security benefit) [$10,000 - $4,000) $14,000 Plus: 50% of Social Security benefits [$23,000 x 50%] $11,500 Provisional income [$14,000+ $11.500] $25,500 Since provisional income is more than $25,000 base amount, 50% of Social Security benefit is taxable.. The taxable portion of the Social Security benefit is [Social Security benetit x 50% = $23,000 x 50%] $11,500

2.)

'D' Is unemployed for more than one year When debt is cancelled or forgiven, the amount of debt forgiven is considered as income and is chargeable to tax However there are exception to above statement, means in following conditions cancelled tax will not be charged to tax 1) When a person dies or became permanently disabled 2) When one meets defination of financial insolvency 3) When one works with organisation that provides health care services in underserved ares Thus being unemployed for more than a year do not fall under exception