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This assignment was locked Feb 27 at 11:59pm. A. There are three types of taxable income;...

This assignment was locked Feb 27 at 11:59pm.

A.

There are three types of taxable income; 1. active, 2. portfolio, 3. passive. Describe each (in your own words) and make sure you understand the tax implications of these incomes.

B.

Debra Ferguson received the items and amounts of income shown below during 2016. Help her calculate, (a) her gross income and (b) that portion (dollar amount) of her income that is tax exempt.

Salary $33,500

Dividends 800

Gift from mother 500

Child support from ex-husband 3,600

Interest on savings account 250

Rent 900

Loan from bank 2000

Interest on state government bonds 300

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Expert Solution

Answer 1-A

Active income = for the purpose of taxation, active income is referred as an income earned from business activities or performing a service. However, it should all the requirements of material participation set by the IRS

Portfolio income = portfolio income is an income neither earned through passive investment nor from the conduct of regular business activities. It includes income that is earned from investments such as dividends, interest, and capital gains, etc.

Passive income = passive income is referred as effortless income. It means much efforts are not made to earn passive income. There is regular cash inflow, requiring minimum efforts to maintain it.

Answer 1-b

Gross income

Salary 33500

+ Dividends 800

+ interest on savings account 250

+ rental income 900

Total gross income 35450

Tax-exempt income

Gift from mother of 500

+ Child support from ex-husband 3600

+ loan from bank 2000

+ interest on state government bonds 300

Total tax exempt income tax 6450

ekkarill92 answered 1 year ago

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