Question
L. Calculate Gross Income For Della Douglass based on the following facts: Provide an explanation for why you did or did not include an item in gross income Salary $200,000 Sole proprietorship income $50,000 Interest from State of Georgia bonds $40,000 Capital gain $20,000 Darla inherited $400,000 from her great aunt Dora. Darla won $4,000 at Church Bingo Darla's brother Darren paid back $60,000 on July 1, 2018, he had borrowed the money from Darla in 2011. Darla received a $50,000 legal settlement from a broken leg that she incurred in a car accident. Dividends $20,000 Unemployment compensation $10,000 Child Support $30,000 Alimony divorce decree was signed in 2012, $60,000 Darla found a diamond bracelet on the beach. The bracelet has a fair market value of $30,000 Darla received a gift of $70,000 from her mother. Partnership income $30,000 Rental Income $15,000 Darla was the beneficiary of a life insurance policy of her grandfather. She received $100,000 upon his death in 2017. Interest from US Treasury Bonds $20,000
Explanation / Answer
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Type of Income Amount ($) Remarks Salary 200,000 Salary is included in Gross income Sole Proprietorship Income 50,000 Business (Proprietorship) and Profession income included in Gross income Interest from State of Georgia bond 0 Interest income on municipal bonds is exempt income and therefore does not form part of Gross income. Capital Gain 20,000 Capital gain income is taxable and hence forms part of Gross income. Inheritance from Aunt Dora 0 Gifts and inheritances are exempt from income tax in USA. Hence, the same is exempt income and will not form part of Gross income. Won at Church Bingo 4000 Prize money is taxable and hence forms part of Gross Income. Debt recovered 0 A past debt recovered is not considered as part of Gross income unless the debt was written off in the books in previous years and subsequently recovered in future. Legal settlement for a broken leg 0 Compensation recieved as a result of personal physical injuries are not taxable and thus do not form part of Gross Income. Dividends 20,000 Dividends form part of Gross Income. Unemployment compensation 10,000 Any form of unemployment compensation recieved is taxable and therefore included in Gross income. Child Support 0 Child support payments recieved are not taxed to the payee. Therefore, the same should not form part of Gross Income. Alimony 60,000 Alimony recieved is taxable and therefore forms part of Gross income Diamond Bracelet 0 Value of lost property found does not form part of Gross income. Gift from Mother 0 Gifts and inheritances are exempt from income tax in USA. Hence, the same is exempt income and will not form part of Gross income. Partnership Income 30,000 As the partnership concerns are not taxed. Hence the partnership income earned by the partner is taxable and hence forms part of the Gross income. Rental income 15000 rental income froms part of Gross income. Proceeds from life insurance policy of grandfather 0 Life insurance proceeds recieved as beneficiary are not included in Gross income. However, any income earned on such proceeds is included. Interest from US Treasury Bond 20,000 At federal level, this interest income is taxed and hence forms part of Gross incom
Total 429,000
