Question

To my friendly student tax preparer:

Hello, my name is Shady Slim. I understand you are going to help me figure out my gross income for the year…whatever that means. It’s been a busy year and I’m a busy man, so let me give you the lowdown on my life and you can do your thing.

I was unemployed at the beginning of the year and got $3,500 in unemployment compensation. I later got a job as a manager for Roca Cola. I earned $55,000 in base salary this year. My boss gave me a $5,500 Christmas bonus check on December 22. I decided to hold on to that check and not cash it until next year, so I won’t have to pay taxes on it this year. Pretty smart, huh? My job’s pretty cool. I get a lot of fringe benefits like a membership to the gym that costs $500 a year and all the Roca Cola I can drink, although I can’t really drink a whole lot. I also got an award for having the department with the least number of accidents. My boss gave me a gold watch worth $250!

As part of my manager duties, I get to decide on certain things like contracts for the company. My good buddy, Eddie, runs a bottling company. I made sure that he won the bottling contract for Roca Cola for this year (even though his contract wasn’t quite the best). Eddie bought me a Corvette this year for being such a good friend and helping him out. The Corvette cost $60,000 and he bought it for me out of the goodness of his own heart. What a great guy!

Here’s a bit of good luck for the year. Upon leaving my office one day, I found $11,000 lying in the street! Well, one person’s bad luck is my good luck, right? So awesome, I love free money! And my friend told me I don’t even have to pay taxes on it!

I like to gamble a lot. I won a $10,000 poker tournament in Las Vegas this year. I also won about $7,000 over the year playing the guys at our Friday night poker game. Can you believe that I didn’t lose anything this year?

Speaking of the guys, one of them hit me with his car as we were leaving the game one night. He must have been pretty ticked that he lost! I broke my right leg and my left arm. I sued the guy and got $12,000 for my medical expenses, $3,000 to pay my psychotherapist for the emotional problems I had relating to the injuries (I got really depressed!), and I won $9,000 in punitive damages. That’ll teach him that he’s not so tough without his car!

Another bit of bad luck. My uncle Monty died this year. I really liked the guy, but the $200,000 inheritance I received from him made me feel a little better about the loss. I did the smart thing with the money and invested it in stocks and tax exempt municipal bonds and socked a little into my savings account. As a result, I received $800 in qualified dividends from the stock, $550 in interest from the municipal bonds, and $200 in interest from my savings account.

My ex-wife, Alice, is still paying me alimony. She’s a lawyer who divorced me a few years ago because I was “unethical” or something like that. Since she was making so much money and I was unemployed at the time, the judge ruled that she had to pay ME alimony. Isn’t that something? She sent me $3,000 in alimony payments this year. She still kind of likes me, though. She sent me a check for $1,000 as a Christmas gift this year. I didn’t get her anything, though.

So there you go. That’s the year in a nutshell. Can you figure out my gross income and complete the Form 1040 for me? And since you’re a student, this is free, right? Thanks, I owe you one! Let me know if I can get you a six-pack of Roca Cola or something.

Complete page 1 and 2 of Slim’s 2017 Form 1040, using 2017 figures, assuming he is unmarried and has no dependents. Determine, from the information given to you, which items are reportable and/or taxable income and where each item should be reported on the tax return, if at all. For any line on the tax return where a reported number is the sum of two or more numbers, create a workpaper, labelled and organized, that shows how you arrived at the number which is on the tax return. Complete the return through line 63, using the correct method for calculating his tax. On a separate sheet of paper, list the changes that would occur in this return if it were completed under 2018 rules. You do NOT have to complete another return; simply list the changes and recalculate the tax due under the new rules.

Answer 1

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Explanation :

=> Sources i referred to while answering :https://turbotax.intuit.com/tax-tips/general/what-to-know-about-taxes-on-found-property/L9BfdKz7N

Hence, the note found lying in street is also taxable.

=> The gift given by Eddie is way too expensive . Gifts above $14000 are taxable !