Question

Bobby is single with no dependents. he is 70 years old and is employed by Theta Corporation. in 2018, theta transfered him. he submits the following information to you for tax year 2018. compute the gross income, adjusted gross income, taxable income, and income tax.

salary 75,000

interest on us govt bonds 5,000

interest on airport municipal bonds 10,000

short term capital loss on sale of stock (8,000)

life insurance from death of uncle 500,000

inheritance from uncle 1,000,000

theta paid bobbys moving expenses 10,000

value of watch from safety award 1,000

cash award for 10 years of service 500

value of parking paid by company 3,600

comany paid cell phone value 2,400

alimony paid to bobbys ex wife divorce decree 12/2015 12,000

child support paid to bobbys ex wife 15,000

itemized deductions 12,500

Answer 1

1. computation of gross total income for the FY 2018

Salary $75000
Interest on US govt bond $5000
Cash Receive for 10 year service $500
Gross income $80500

Note

1. as per federal taxation Interest on municipal bond are not taxable
2. amount received on maturity of life insurance policy are not taxable in the hand of benificiary
3. inheritance received on the death of uncle does not amount to taxable purpose
4. if any amount given in cash by theta then it will be taxable in the hands of asseseee but the award given in kind which is not taxable up to the value of $5000
5. mobil expense incurred are not taxable in the hands of employee
6. parking provided by employer is also not taxable
7. child support payment are not taxable for receiver and for payer

2. Computaion of Adjusted Gross Income for the FY 2018

Gross Income $80500
Less Adjustments:

1. Alimony paid $(12000)
2. Short term capital loss $(3000)   $(15000)
   Adjusted gross income $65500  

(capital loss are allowed to deduct up to limit of $3000 before capital gain)

3. Computation of Taxable income for the FY 2018

Adjusted gross total income $65500

Less Itemized deductions $(12500)
Taxable Income     $ 53000

4. Computation of Income tax For the FY 2018

Taxable Income $53000
Income tax (Federal taxation)   $8890