A. There are three types of taxable income; 1. active, 2. portfolio, 3. passive.
ID: 2814620 • 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
A
Active income: It is an income which one will earn when he/she will perform some work /service. For example, your salary, your tips etc. This income is taxable as per the income tax rules of a particular county.
Passive Income : It is the income for which you do not need to work constantly. For example : you bought a house and you put it on rent. That rental income is passive income.
Portfilio Income : It is the income which you earn from portfolio of investment. Dividends, interest, capital gain are part of portfolio income. Sometimes, these return are considered as passive investment also
Active income is taxed the most ranging from 10% to 35% while portfolio income is taxed least
B
Gross income = salary + dividends + interest income
Gross income = 33500 + 800 + 250 + 300 = 34850
Gift given to mother is not taxable - 500
Child supprort from ex-husband is not taxable - 3600
Rent paid is tax deductable - 900
Loan from bank is tax deductable - 2000
Interest on state govt bond is tax deductable - 300
Total = 7200
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