The Taxation of Annuity Income and Debt Cancellation
Not what you're looking for?
1.Jane purchased an annuity contract that pays her $800 per month. The annuity cost her $60,000 and it has an expected return of $100,000. How much of each monthly annuity payment is includible in jane's gross income?
2. Sam owes Bob $8,000. Bob cancels (forgives) the debt. The cancellation is not a gift and Sam is bankrupt. Which of the following statements is correct concerning the impact of this transaction?
a. Both Bob and Sam recognize $8,000 of taxable income.
b. Bob recognizes $8,000 of taxable income.
c. Sam recognizes $8,000 of taxable income.
d. Neither Bob nor Sam has any taxable income from this transaction.
Purchase this Solution
Solution Summary
This solution discusses the computation of the taxable portion of annuity income when the holder has invested in the annuity contract, as well as the taxability of the amount of debt forgiveness.
Solution Preview
1. A taxpayer will generally owe tax on the full amount of annuity proceeds he or she receives. However, it is a basic principle of taxation that one need not pay income on recovery of his or her original investment ("basis"). Because Jan contributed $60,000 and expects to receive total annuity proceeds ...
Purchase this Solution
Free BrainMass Quizzes
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)