1-As per the U.S Tax Laws, answer the following questions. Explain your answer b
ID: 357457 • Letter: 1
Question
1-As per the U.S Tax Laws, answer the following questions. Explain your answer by giving the reasons. (3 Marks)
Mr. Calvin has a land valued at $ 45,000 in the beginning of the year and the value of the land appreciated to $ 60,000 at the end of the year. Will the increase in the value of land be taxed? If not, why?
Mr. Peter has saved an amount of $ 600 per month by washing his own car. In this way he has saved an amount of $ 7200 during the taxable year. What amount of his saving in this way is taxable? If not, why?
Mr. Anderson sold his property for 120,000 to Mr. David. The cost price of the property sold was $ 100,000. What amount of the property sold is taxable and what amount is not taxable. Explain by giving reason.
Mr. Paul has a life insurance policy of the sum assured of $ 1,500,000 for a period of 20 years. He paid annual premium of $ 50,000 for 12 years and then surrendered the policy for $ 850,000. What amount of the Life Insurance Proceeds is taxable? Explain why?
2-An extra benefit supplementing an employee's money wage or salary is called Fringe Benefit. Examples are a company’s car, private health care, etc. What Fringe Benefits do you get from your employer in your organizations? Describe in detail. (4 Marks)
Explanation / Answer
Answer to question a)
Tax may be imposed on $60,000 the price at the end of the year. This is because according to US tax laws, the property is assessed on the fair market value. But when there has been no sale, then the cost is used which may be adjusted for inflation or increases or decreases in cost of constructing improvements.
Answer to question b)
The question says about car expenses. But it is not specific if it is for personal or official use. In this case, the savings will not be taxable if the employer of peter hasn’t provided for the reimbursement.
Answer to question c)
In this case, the property has been sold for $1, 20,000 and the cost price was $1, 00,000. So this will attract capital gain tax which is nothing but excess of sales price over the cost basis of the asset. So here Anderson has to pay capital gain tax on $20, 000(excess of $1, 20,000 and $1, 00,000).
Answer to question d)
Generally proceeds on life insurance are not taxable. But when your paid out exceeds your paid in, then it is taxable. So here the paid in $50,000* 12 which is $6, 00,000 and the surrendered value i.e. payout is $8, 50,000 is more. So it is taxable.
Answer to question e)
Details of fringe benefits.
The fringe benefits provided by my current employer are cell phones, free snacks, health insurance benefits, education assistance by having tie ups with some major universities, retirement plan contributions by creating savings every month for after retirement benefit.
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