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12 September, 10:07

A taxpayer, age 64, purchases an annuity from an insurance company for $82,000. She is to receive $683 per month for life. Her life expectancy is 20.8 years from the annuity starting date. Assuming that she receives $8,200 this year, what is the exclusion percentage and how much is included in her gross income

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  1. 12 September, 10:34
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    Exclusion Percentage = 48.10%

    Included in income = $4256

    Explanation:

    The exclusion percentage can be calculated using the following formula:

    => Exclusion Percentage = Investment in Total / (Payments made * Life Expectancy * Total months in a year)

    => Exclusion Percentage = $82,000 / ($683 * 20.8 * 12)

    => Exclusion Percentage = 0.4810 = 48.10% (Rounded off to two decimal places)

    (Included in income):

    The Included in income amount can be calculated using the following formula:

    => Included in Income = (Received amount - Return on Capital) (Edited to accomodate changes)

    & Return on Capital = (Received amount * Exclusion percentage) (Edited to accomodate changes)

    => ROC = $8200 * 0.481 = 3944.2 (Edited to accomodate changes)

    => Included in income = ($8200) - 3944.2 = 4255.80 = > 4256 (Rounded off to nearest dollar amount)
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