3.34
In 2016, Anna borrowed $10,000. In 2021 the debt was forgiven. Anna does not believe she should report the debt forgiveness as income because she received nothing when the debt was dismissed in 2021. Do you agree or disagree? Support your position.
I can’t entirely agree with Anna. She should still report the forgiveness of debt as income. Even though the $10,000 was forgiven, it is still taxable. She spent the $10,000 and received items or services with that money.
3.38
Determine the amount of tax liability in the following situations. In all cases, the taxpayer uses the married filing status jointly.
- a) Taxable income of $62,449, including a qualified dividend of $560.
Tax liability: $7,028.68. BUS 4065 Unit 2 Assignment 1 Inclusion and Exclusions
Explanation: $62,449 – $560 = $61,889. The income falls into the 12% tax bracket. So, $61,889 x 12% = $7,426.68. Subtracting the tax on the qualified dividend ($560 x 12% = $67.20) from this result, we get $7,426.68 – $67.20 = $7,359.48. Finally, adding the qualified dividend ($560) to the result gives us $7,359.48 + $560 = $7,919.48.
- b) Taxable income of $12,932, including a qualified dividend of $322.
Tax liability: $1,261.
Explanation: $12,932 x 10% = $1,293.20. Subtracting the tax on the qualified dividend ($322 x 10% = $32.20) from this result, we get $1,293.20 – $32.20 = $1,261.
- c) Taxable income of $144,290, including a qualified dividend of $4,384.
Tax liability: $22,933.92.
Explanation: $144,290 – $4,384 = $139,906. The income falls into the 22% tax bracket. So, $139,906 x 22% = $30,779.32. Subtracting the tax already calculated ($9,328) from this result, we get $30,779.32 – $9,328 = $21,451.32. Finally, adding the tax on the qualified dividend ($4,384 x 15% = $657.60) to the result gives us $21,451.32 + $657.60 = $22,108.92.
- d) Taxable income of $43,297, including a qualified dividend of $971.
Tax liability: $4,681.12.
Explanation: $43,297 – $971 = $42,326. The income falls into the 12% tax bracket. So, $42,326 x 12% = $5,079.12. Subtracting the tax on the qualified dividend ($971 x 12% = $116.52) from this result, we get $5,079.12 – $116.52 = $4,962.60. Finally, adding the qualified dividend ($971) to the result gives us $4,962.60 + $971 = $4,681.12. BUS 4065 Unit 2 Assignment 1 Inclusion and Exclusions
- e) Taxable income of $262,403, including a qualified dividend of $12,396.
Tax liability: $49,903.08.
Explanation: $262,403 – $12,396 = $250,007. The income falls into the 24% tax bracket. So, $250,007 x 24% = $60,001.68. Subtracting the tax already calculated ($29,502) from this result, we get $60,001.68 – $29,502 = $30,499.68. Finally, adding the tax on the qualified dividend ($12,396 x 15% = $1,859.40) to the result gives us $30,499.68 + $1,859.40 = $32,359.08.
3.39
The following taxpayers received a state income tax refund in 2021. In all cases, the taxpayer has a married filing status jointly. What amount of the refund is properly included in 2021 income?
- a) Refund of $729; taxpayer did not itemize deductions in 2020.
Answer: None, because the taxpayer did not itemize deductions.
- b) Refund of $591; taxpayer had $25,391 of itemized deductions in 2020.
Answer: The taxpayer would be taxed on the full $591.00 since they itemized deductions and the amount exceeds the standard deduction.
- c) Refund of $927; taxpayer had itemized deductions of $25,100 in 2020.
Answer: The itemized deductions are less than or equal to the standard deduction of $25,100. Therefore, they would not be taxed on the refund of $927.
3.41
Carl and Karina file a joint return. Karina earned a salary of $38,000 and received dividends of $3,000, taxable interest income of $2,000, and nontaxable interest of $1,000. Carl received $9,000 of social security benefits and a gift of $6,000 from his brother. What amount of social security benefits are taxable to Carl and Karina?
Income = $38,000 + $3,000 + $2,000 = $43,000
85% of social security benefits = $9,000 x 85% = $7,650
Thus, $7,650 of social security benefits is taxable to Carl and Karina.
Should the cost of meals provided during a 20-minute break at Burger Store be taxable or tax-free to employees?
The cost of these meals should be tax-free to employees since the employer made this a policy. They aren’t giving their employees an option to take a 30-minute break, but only a 20-minute break on premises with a free lunch. The employer should exclude this as additional compensation. BUS 4065 Unit 2 Assignment 1 Inclusion and Exclusions
