A. There are three types of taxable income; 1. active, 2. portfolio, 3. passive.
ID: 2530876 • Letter: A
Question
A.
There are three types of taxable income; 1. active, 2. portfolio, 3. passive. Describe each (in your own words) and make sure you understand the tax implications of these incomes.
B.
Debra Ferguson received the items and amounts of income shown below during 2016. Help her calculate, (a) her gross income and (b) that portion (dollar amount) of her income that is tax exempt.
Salary $33,500
Dividends 800
Gift from mother 500
Child support from ex-husband 3,600
Interest on savings account 250
Rent 900
Loan from bank 2000
Interest on state government bonds 300
Explanation / Answer
Answer 1-A
Active income = for the purpose of taxation, active income is referred as an income earned from business activities or performing a service. However, it should all the requirements of material participation set by the IRS
Portfolio income = portfolio income is an income neither earned through passive investment nor from the conduct of regular business activities. It includes income that is earned from investments such as dividends, interest, and capital gains, etc.
Passive income = passive income is referred as effortless income. It means much efforts are not made to earn passive income. There is regular cash inflow, requiring minimum efforts to maintain it.
Answer 1-b
Gross income
Salary 33500
+ Dividends 800
+ interest on savings account 250
+ rental income 900
Total gross income 35450
Tax-exempt income
Gift from mother of 500
+ Child support from ex-husband 3600
+ loan from bank 2000
+ interest on state government bonds 300
Total tax exempt income tax 6450
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