Question

For each situation below, determine the amount that Jerry and Michelle should include in gross income. Unless specifically stated otherwise, each item was received or paid during 2020.

For each item, enter the appropriate amounts in the associated cells. If the amount is zero, enter a zero (0). Round all amounts to the nearest whole dollar.

Income Items	Answer
1. Xavier, Inc., an S corporation, paid $3,000 in director's fees to Michelle. As a shareholder of Xavier, her pro rata share of Xavier's ordinary income for the 2020 calendar and tax year of Xavier was $15,000.
2. Larson Corp. paid salary of $37,000 to Jerry. He received $200 per month of child support from his former spouse.
3. Larson Corp. paid $235 in premiums on a $49,000 nondiscriminatory group permanent life insurance policy for Jerry. Michelle is named as beneficiary under the policy.
4. Michelle received $700 in jury service fees.
5. Michelle opened a savings account at Friendly Credit Union with a $5,000 deposit. As an incentive for opening the account, she received a new mp3 player (worth $125). She received a $100 dividend on the account on December 20, 2020.
6. Jerry received $800 in interest on U.S. Treasury bonds.
7. Michelle received $500 in interest on a loan to an unrelated third party. The loan was arranged by a mutual acquaintance. Under state law, the $75 excess over $425 is usurious and unenforceable.
8. Jerry and Michelle received a $375 refund on state income taxes, plus $15 in interest on the amount. Jerry and Michelle's federal income tax liability for 2019 was reduced as a result of deducting the $375 paid to the state.
9. Jerry received a gift of $400 in cash and $100 in gift certificates from his employer.

Answer 1

1.

$3,000 as director fee is taxable.

$15,000 is also taxable

2.

Salary of $37,000 is also taxable.

Child support payment is tax-free.

3.

Health insurance paid by the company is exempt from taxes; so, this amount will not be recorded.

4.

Jury service fees are also taxable under the laws. So, $700 will be taxable.

5.

Non-monetary gifts up to $500 are not taxable so, $125 is not subject to tax.

Dividend income is taxable. So, the amount will be $100

6.

Treasury bonds are taxable under federal tax laws.

So, the interest income is also taxable = $800

7.

Under state laws, the whole amount is taxable.

So, the taxable amount will be = $500

8.

The tax refund is not recorded as taxable income however; interest on that refund is recorded. So, the $15 will be recorded as income.

9.

Cash and cash equivalent gifts must be recorded in taxable income. So, $500 will be recorded.

Total gross income = Director fees + Ordinary income from shares + Salary + Jury service fees + Dividend income + Interest on t-bonds + Interest on loan + Interest on tax refund + Cash equivalent gifts.

                   = $3,000 + $15,000 + $37,000 + $700 + $100 + $800 + $500 + $15 + $500

                   = $57,615.