Determine Amos\'s gross income in each of the following cases: In the current ye

Question

Determine Amos's gross income in each of the following cases: In the current year, Amos purchased an automobile for $25,000. As pan of the transaction, Amos received a $1,500 rebate from the manufacturer. Amos sold his business. In addition to the selling price of the stock, he received $50,000 for a covenant not to compete-an agreement that he will not compete with his former business for five years. Amos owned some land he held as an investment. As a result of a change in the zoning rules, the property increased in value by $20,000.

Explanation / Answer

GROSS INCOME

1. An individual's total personal income, before accounting for taxes or deductions.

2. A company's revenue minus cost of goods sold. Also called gross profit and, when it is expressed as a percentage of revenue, gross margin.

a) Cash rebates from a dealer or manufacturer for an item you buy is not taxable.Hence it is not included in gross income .

b) When a business is sold, it is not uncommon for a portion of its sale price to be attributable to a noncompete agreement between the seller and the buyer. For tax purposes, a covenant not to compete is recognized when it is severable from goodwill, the agreement is separately bargained for, and the covenant can be shown to have economic substance. When this is the case, the portion of the sale price attributable to goodwill is generally treated as a capital asset, and the payment received for the noncompete agreement is taxable as ordinary income.

c) Increases in value attributable to assets the taxpayer retains (unrealized gain) are not income under the tax law.

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