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23 November, 18:51

How much of the following is taxable? a. Cheline, an actress, received a $6,400 gift bag for attending the Academy Awards Ceremony during 2018. b. Jon received a gold watch worth $660 for 25 year of service to his accounting firm (not a qualified award). c. Kerry won $1,000,000 in her state lottery. d. Deborah is a professor who received $30,000 as an award for her scientific research from the university that employs her.

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  1. 23 November, 19:04
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    A. $6,400

    B. $240

    C. $1,000,000

    D. $30,000

    Explanation:

    Requirement A, C, and D:

    Prizes and awards are taxable income for a taxpayer. Any awards or prizes won from the lottery or television should be added to the income. Therefore, the Winning lottery is a taxable income for Kerry, $1,000,000. Again, Receiving the award for scientific research is also taxable income for Deborah, $30,000.

    The winning award for accomplishments is also a taxable income. So, receiving a $6,400 worth gift bag is a taxable income for Cheline.

    Requirement B:

    There is an exception if the award is for tangible property and a long-years of accomplishment. At that time, the taxpayers will be excluded from some part of the necessary amounts to be paid as tax. If it is not a qualified award, the exclusion will be $400. If it is qualified, the tax exclusion is 1,600. Since Jon received a gold watch for 25 years of service and the gift is not qualified, he has to pay tax for $ (660 - 400) = $240.
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