On July 1, 2022, Nate, a cash basis taxpayer, paid $1,200 of car insurance premiums for a 12 month insurance policy on a delivery van that he used in his pizza delivery business. Nate correctly deducted the $1,200 of insurance premiums on his 2022 tax return. He had $170,000 of taxable income that year. On March 31, 2023, he sold the delivery truck and, as a result, received a $300 refund on his insurance premiums. Nate's marginal tax rate was 40% in 2022 and 2023. As a result of the above:
On July 1, 2022, Nate, a cash basis taxpayer, paid $1,200 of car insurance premiums for a 12 month insurance policy on a delivery van that he used in his pizza delivery business. Nate correctly deducted the $1,200 of insurance premiums on his 2022 tax return. He had $170,000 of taxable income that year. On March 31, 2023, he sold the delivery truck and, as a result, received a $300 refund on his insurance premiums. Nate's marginal tax rate was 40% in 2022 and 2023. As a result of the above:
answer choices:
Nate should not include any income in 2023 because an insurance reimbursement does not result in income.
Nate should include the $300 in 2023 gross income.
Nate should amend his 2022 return and claim $300 less insurance expense.
Nate should include $1,200 in gross income in 2023.
Nate should include half of the amount ($600) in income in 2023.
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