[The following information applies to the questions displayed below.] Consider t

Question

[The following information applies to the questions displayed below.]

Consider the following letter and answer Shady’s 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 $2,000 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 $5,000 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 $400 a year and all the Roca Cola I can drink, although I can’t really drink a whole lot.

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. The Corvette cost $50,000 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 $8,000 lying in the street! Well, one person’s bad luck is my good luck, right?

I like to gamble a lot. I won a $22,000 poker tournament in Las Vegas this year. I also won about $5,000 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 $11,000 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 $12,000 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 bonds and socked a little into my savings account. As a result, I received $600 in dividends from the stock, $200 in interest from the municipal bonds, and $300 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 $500 as a Christmas gift this year.

I have filled this out, and it is correct

I have to fill a practice 1040, and I am having a hard time differentiating what is defined as wages, tips and salaries ... and what is "other income" (no. 21 on 1040)?

I know unemployment compensation, alimony, dividends and interest have their own sections..but what about the others? Help!

Thanks!

Included in Gross Income Amount Unemployment compensation $2,000 Salary 55,000 Christmas bonus-check 5,000 Gym membership 400 Corvette 50,000 Found money 8,000 Gambling winnings 27,000 Punitive damages from lawsuit 12,000 Dividends 600 Savings account interest 300 Alimony 3,000 Total gross income $163,300

Explanation / Answer

Ans;

Answer: $163,300 calculated as follows:

Included in
Gross Income

Amount

Excluded from
Gross Income

Amount

Gym membership

$400

Unemployment Compensation

2,000

Salary

55,000

Safety Award

$300

Christmas Bonus-Check

5,000

Recovery from lawsuit

14,000

Corvette

50,000

Inheritance

200,000

Found Money

10,000

Municipal Bond Interest

400

Gambling Winnings

27,000

Christmas gift from ex-wife

500

Punitive Damages from Lawsuit

10,000

Dividends

600

Total Exclusions*

$215,200

Savings Account Interest

300

Alimony

3,000

Total Gross Income

$163,300

*Value of Roca Cola excluded as de minimis fringe benefit.

Included in
Gross Income

Amount

Excluded from
Gross Income

Amount

Gym membership

$400

Unemployment Compensation

2,000

Salary

55,000

Safety Award

$300

Christmas Bonus-Check

5,000

Recovery from lawsuit

14,000

Corvette

50,000

Inheritance

200,000

Found Money

10,000

Municipal Bond Interest

400

Gambling Winnings

27,000

Christmas gift from ex-wife

500

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