Linda’s husband dies, naming her the sole beneficiary of a $500,000 life insurance policy. The insurance...

Linda’s husband dies, naming her the sole beneficiary of a $500,000 life insurance policy. The insurance company informs her that she has two options: (1) she can receive the entire $500,000 in one lump-sum payment or (2) she can receive annual installments of $58,000 for 10 years

a. How much does Linda include in gross income if she takes the lump- sum payment?

b. How much does Linda include in gross income each year if she elects the installment payments?

Solutions

Expert Solution

a). Answer :- Zero.

Explanation :- If Linda opts for lump-sum payment then nothing (zero amount) will be included in her gross income (for tax purposes) because in general, proceeds from life insurance are not taxable at all.

b). Answer :- Lind will include $ 8000 each year in her gross income.

Explanation :- Tax free income of Linda = 500000 * 58000 / (58000 * 10)

= 500000 * 58000 / 580000

= 500000 * 0.10

= $ 50,000

Accordingly, amount to be included in gross income of Linda each year (for tax purpose) = 58000 - 50000.

= $ 8,000.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Tonya purchased a life insurance policy on her own life. Her husband Donald is the beneficiary of the policy.

Question 13 Tonya purchased a life insurance policy on her own life. Her husband Donald is the beneficiary of the policy. Which of the following is not a necessary legal element of the contract?1)Offer and acceptance.2)Legal competency of all parties.3)Listed beneficiary.4)Consideration.Question 14 Which of the following statements is/are correct?1. Insurance companies are concerned with morale hazard as people who have insurance are not as concerned about protecting their own property.2. Intentional acts of an insured resulting in a loss are generally insurable.1)1...

rilyn Simms died with a $200,000 life insurance policy. Her husband, Jack, was the primary beneficiary...

rilyn Simms died with a $200,000 life insurance policy. Her husband, Jack, was the primary beneficiary and their children, Mimi (age 24) and Ann (age 30), were the contingent beneficiaries. All three survived Marilyn. How would the policy proceeds be distributed?

If you are the beneficiary of a $500,000 life insurance policy, you can either receive the...

If you are the beneficiary of a $500,000 life insurance policy, you can either receive the $500,000 in cash or you can take $27,400 per year spread over 30 years with the first payment today. which should you choose?

Ellie purchases an insurance policy on her life and names her brother, Jason, as the beneficiary....

Ellie purchases an insurance policy on her life and names her brother, Jason, as the beneficiary. Ellie pays $56,750 in premiums for the policy during her life. When she dies, Jason collects the insurance proceeds of $851,250. As a result, Jason reports gross income of?

The beneficiary of a life insurance policy is generally: a. a creditor beneficiary. b. an incidental...

The beneficiary of a life insurance policy is generally: a. a creditor beneficiary. b. an incidental beneficiary. c. a donee beneficiary. d. a debtor beneficiary. Despite the general rule allowing minors to disaffirm their contracts, some states have passed special statutes that make minors liable for which of the following? a. Educational loans. b. Medical and dental expenses. c. Insurance policies. d. All of the above. Which of the following contracts would be governed by the Uniform Commercial Code? a....

A life insurance trust is often named the beneficiary of a life insurance policy it holds...

A life insurance trust is often named the beneficiary of a life insurance policy it holds for which of the following reasons? a. It can provide greater flexibility than is available under insurance settlement options b. It can eliminate a second estate tax upon the death of the beneficiaries. c. It can incorporate special limitations and restrictions on the funds designed to be paid to specific beneficiaries. d. All of the above

As the beneficiary of a life insurance policy, you have twooptions for receiving the insurance...

As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $255,000 today or receive payments of $2,000 a month for 18 years. If you can earn 6 percent (APR) on your money, which option should you take and why?A.You should accept the payments because they are worth $263,796 today.B.You should accept the payments because they are worth $259,111 today.C.You should accept the payments because they are...

1.When Steve died, his wife Linda was the sole beneficiary of his $50,000 life insurance policy....

1.When Steve died, his wife Linda was the sole beneficiary of his $50,000 life insurance policy. How will the $50,000 life insurance proceeds affect Linda’s gross income? 2.For tax purposes in 2018, A&P had operating income of $375,000 and operating expenses of $128,000. Included in A&P’s expenses is $22,000 for bad debts write-offs during 2018. In January of 2019, they received $7,000 from an account that was written off as a bad debt in 2018. What effect does this collection...

Edie died last month owning a whole life insurance policy on her husband Rob’s life. The...

Edie died last month owning a whole life insurance policy on her husband Rob’s life. The death benefit amount was $500,000 and the insurance company valued the policy at $80,000. Edie was the beneficiary of the policy and her son Manny was the contingent owner. What amount is included in Edie’s estate? Is the policy part of Edie’s probate estate? Explain your answers.

As the beneficiary of a life insurance policy, you have two options for receiving the insurance...

As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6 percent on your money, which option should you take and why?

Subjects