Question

Determine the taxpayer's current-year (1) economic income and (2) gross income for tax purposes from the following events: If an amount is zero, enter "0". Gross Income for Tax Purposes Economic Income Sam's employment contract as chief executive of a large corporation was terminated, and he was paid $500,000 not to work for a competitor of the corporation for five years. Elliot, a 6-year-old child, was paid $5,000 for appearing in a television commercial. His parents put the funds in a savings account for the child's education. Valery found a suitcase that contained $100,000. She could not determine who the owner was Winn purchased a lottery ticket for $5 and won $750,000. a. b. c. d. Larry spent $1,000 to raise vegetables that he and his family consumed. The cost of the vegetables in a store would have been $2,400. e. t. Dawn purchased an automobile for $1,.500that was worth $3,500. The seller was in desperate need of cash.

Answer 1

	Economic Income	Gross Income
Amount on Contract Termination	500000	500000
Income from child's performance	5000	5000
Income from suitcase	100000	100000
Winning from Lottery	749995	750000
Gain from vegetable raising	1400	0
Gain on purchase of automobile	2000	0
Total	$1358395	$1355000

Gross income considers the earnings realized & earned during the year, while economic income considers it's impact on person's net worth. Based on this,

Net effect i.e. net of ticket expense for income is considered for winning from lotteries.

Gain from raising of vegetables & purchase of automobiles are not realized in actual, hence such amount cannot be included in groos income but it;s effect wll be taken in economic profit.