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Marriage Penalty; Life Annuity Taxation

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1. Howard and Beatrice plan to marry either immediately before or immediately after year-end. Howard's taxable income for 2010 is $89,000 and Beatrice's is $85,000 before their exemptions and deductions. Neither has any dependents nor itemized deductions. Based only on tax considerations, what marriage date would you recommend for the loving couple? How much would your choice save in taxes?

2. In 1991, Barbara purchased a single life annuity for $250,000 that would pay her $25,000 per year for life beginning in 2002. Barbara's life expectancy from 2002 forward on which the payments were based is 25 years.

a. How much would Barbara include in income if she is still receiving payments in 2020?

b. If Barbara dies in 2010 after receiving that year's payment, what is the investment portion remaining? How is the unrecovered investment treated for tax purposes?

Please use excel

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Solution Summary

This solution illustrates how to compute the marriage penalty and how to compute the taxable portion of a life annuity.

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