dvise Michelle of the income tax consequences on receipt of $210,000 from Alex.
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On 10 September 2021, Michelle purchases a 10-year annuity from the “Retirees Gold Ltd” (RGL). Under the agreement, Michelle pays a lump sum amount of $1 million, and in return RGL would pay her $24,000 per year over and above Michelle’s $1 million investment. On 16 September 2021, Michelle sells the right to receive the annual payments to Alex for $210,000.
Required: Advise Michelle of the income tax consequences on receipt of $210,000 from Alex. Cite relevant legislation and cases in support of your answer.
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- On January 1, 2019, Kunto, a cash basis taxpayer, pays 46,228 for a 24-month certificate. The certificate is priced to yield 4% (the effective interest rate) with interest compounded annually. No interest is paid until maturity, when Kunto receives 50,000. In your computations: a. Compute Kuntos gross income from the certificate for 2019. b. Compute Kuntos gross income from the certificate for 2020. Round any amounts to the nearest dollar.Freda is a cash basis taxpayer. In 2019, she negotiated her salary for 2020. Her employer offered to pay her 21,000 per month in 2020 for a total of 252,000. Freda countered that she would accept 10,000 each month for the 12 months in 2020 and the remaining 132,000 in January 2021. The employer accepted Fredas terms for 2020 and 2021. a. Did Freda actually or constructively receive 252,000 in 2020? b. What could explain Fredas willingness to spread her salary over a longer period of time? c. In December 2020, after Freda had earned the right to collect the 132,000 in 2020, the employer offered 133,000 to Freda at that time, rather than 132,000 in January 2021. The employer wanted to make the early payment so as to deduct the expense in 2020. Freda rejected the employers offer. Was Freda in constructive receipt of the income in 2020? Explain.On June 30, 2019, Kelly sold property for 240,000 cash and a 960,000 note due on September 30, 2020. The note will also pay 6% interest, which is slightly higher than the Federal rate. Kellys cost of the property was 400,000. She is concerned that Congress may increase the tax rate that will apply when the note is collected. Kellys after-tax rate of return on investments is 6%. a. What can Kelly do to avoid the expected higher tax rate? b. Assuming that Kellys marginal combined Federal and state tax rate is 25% in 2019, how much would the tax rates need to increase to make the option identified in part (a) advisable?
- Marlene, a cash basis taxpayer, invests in Series EE U.S. government savings bonds and bank certificates of deposit (CDs). Determine the tax consequences of the following on her 2019 gross income: a. On September 30, 2019, she cashed in Series EE bonds for 10,000. She purchased the bonds in 2009 for 7,090. The yield to maturity on the bonds was 3.5%. b. On July 1, 2018, she purchased a CD for 10,000. The CD matures on June 30, 2020, and will pay 10,816, thus yielding a 4% annual return. c. On July 1, 2019, she purchased a CD for 10,000. The maturity date on the CD was June 30, 2020, when Marlene would receive 10,300.Minnie owns a qualified annuity that cost 78,000. The annuity is to pay Minnie 650 per month for life after she reaches age 65. Minnie turns 65 on September 28, 2019, and receives her first payment on November 1, 2019. a. How much gross income does Minnie have from the annuity payments she receives in 2019? b. Shortly after receiving her payment on October 1, 2034, Minnie is killed in an automobile accident. How does the executor of Minnies estate account for the annuity on her return for the year 2034? c. Assume that the accident does not occur until November 1, 2043. How does the executor of Minnies estate account for the annuity on her 2043 return?Virginia and Richard are married taxpayers with adjusted gross income of $28,000 in 2019 If Virginia is able to make a $1,500 contribution to her IRA and Richard makes a $1,500 contribution to his IRA, what is the Saver's Credit Virginia and Richard will be eligible for? $0 $1,500 $2,000 $3,000 $4,000
