Chapter 3 Solutions - pg 1-4

# Chapter 3 Solutions - pg 1-4 - Stewart – Tax I - Chapter...

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Unformatted text preview: Stewart – Tax I - Chapter 3 Annuity Example – Fixed Term George invests \$6,000 and will receive \$1,000/year for 10 years. What amount is excludable each year from George’s income? Exclusion ratio? \$6,000/\$10,000 = .6 or 60% Exclusion each year? .6 x \$1,000 = \$600 Gross Income each year? Received - Excluded = Income \$1,000 \$600 = \$400 1 Stewart – Tax I - Chapter 3 Annuity Example – Annuity for Life A taxpayer, age 59, invests \$24,800 that will pay him \$200 per month for life. How much is excludable from & includible in gross income? (Table on page 3-12) Monthly Exclusion? \$24,800/310 = \$80/month Excluded per year? \$80 x 12 months = \$960 Gross income/year? \$2,400 - \$960 = \$1,440 What if TP lives longer than 310 months? 100% pmts after 310 months = GI What if TP lives only 200 months? Basis = 24,800 Recouped tax free (200 mo. x \$80/mo) = (16,000) Itemized deduction = 8,800 2 Stewart – Tax I - Chapter 3 Modified AGI Example A single taxpayer received \$3,000 in Social Security payments & \$2,000 of tax exempt interest. Her AGI without the SS is \$30,000. Modified AGI? AGI \$30,000 + 1/2 SS + 1,500 + T.E. INT. + 2,000 Mod. AGI = \$33,500 Tier One Example What is the taxable portion of her \$3,000 Social Security income? Lesser of: ½ SSI 3,000 x 1/2 = \$1,500 Lesser = \$1,500 ½ (Mod AGI – Base Amount) 33,500 - 25,000 = 8,500 3 Stewart – Tax I - Chapter 3 Example for Tier Two If a single taxpayer receives Social Security of \$12,000 and has AGI of \$50,000 before SSI: Modified AGI? AGI 50,000 1/2 SS + 6,000 T.E. INT -0MOD AGI = 56,000 Taxable SSI? Lessor of 1 or 2 Step 2: [.85 x (Mod AGI-Base Amt)] + lesser of (1) or (2) 1. 85% SSI step 1 = 10,200 .85 x 12,000 = 10,200 Lesser of 1 or 2 = \$ 10,200 2. A + B A. 85% Mod AGI – Base Amt .85 (56,000 - 34,000) = 18,700 B. Lesser of (1) or (2) (1) A 18,700 B + 4,500 = 23,200 step 2 Tier 1 inclusion amount (1/2 SSI) 6,000 (2) \$4.5K unmarried or \$6K MFJ 4,500 4 lesser = 4,500 ...
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## This note was uploaded on 02/22/2012 for the course ACCT 403 taught by Professor White during the Fall '11 term at South Carolina.

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