Compute the taxable income for 2017 for Aiden on the basis of the following info

Question

Compute the taxable income for 2017 for Aiden on the basis of the following information. Aiden is married but has not seen or heard from his wife since 2015.

The personal exemption amount for 2017 is $4,050. Click here to access the standard deduction table to use, if required.

Salary $80,000 Interest on bonds issued by City of Boston 3,000 Interest on CD issued by Wells Fargo Bank 2,000 Cash dividend received on Chevron common stock 2,200 Life insurance proceeds paid upon death of aunt (Aiden was the designated beneficiary of the policy) 200,000 Inheritance received upon death of aunt 100,000 Jackson (a cousin) repaid a loan Aiden made to him in 2011 (no interest was provided for) 5,000 Itemized deductions (state income tax, property taxes on residence, interest on home mortgage, and charitable contributions) 9,700 Number of dependents (children, ages 17 and 18, and mother-in-law, age 70) 3 Age 43

Explanation / Answer

Life insurance proceeds received on the event of demise of the insured person is generally not taxable in the hands of the beneficiary. But if any interest is arising out therefrom this is a taxable income and hence to be reported accordingly.

Inheritance is also not taxable in the hands of the beneficiary and therefore not reported in the taxable income. However foreign inheritance is taxed if it is above the limit of $100000.

Generally loans given free of interest is taxed in certain situations. The rule for imputed interest applies in this case. But due to want of adequate information on these, taxable portion of imputed interest could not be calculated.     

Exemptions: $4050 x 3 = $12150

Computation of taxable income Wages, salaries, tips etc. 80000 Taxable interest 2000 Taxable dividends 2200 Adjusted Gross Income 84200 Deductions: Itemized deductions 9700 Exemptions 12150 Total Deductions 21850 Taxable Income 62350 Tax 11333

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