Question

Addison pays $15,000 for an annuity that will pay $1,000 a year, starting this year. If the annuity is for a term of 20 years, how much taxable income will Addison have from the annuity each year? Question 16 options: Addison will never have taxable income resulting from annuity distributions. Addison will have $250 of taxable income from the annuity each year. Addison will have $750 of taxable income from the annuity each year. Addison will have $1,000 of taxable income from the annuity each year.

Answer 1

Answer:

Addison will have $250 of taxable income from the annuity each year

Explanation:

Given:

Addison's total pay = $15,000

Per year amount receive = $1,000

Total amount receive = $1,000 x 20 = $20,000

Computation of Addison's exclusion ratio:

Addison's exclusion ratio = $15,000 / $20,000

Addison's exclusion ratio = 0.75

Computation of Addison's gross income:

Addison's gross income = Per year amount receive x (1 - Addison's exclusion ratio)

Addison's gross income = $1,000 x (1 - 0.75)

Addison's gross income = $250