Question

Determine the gross income of the beneficiaries in the following cases:

Answer 1

Answer:

1. Justin’s employer was downsizing and offered employees an amount equal to one year’s salary if the employee would voluntarily retire.

• the compensation is included in Justin's gross income.

2. Trina contracted a disease and was unable to work for six months. Because of her dire circumstances, her employer paid her one-half of her regular salary while she was away from work.

• the compensation is included in Trina's gross income.

3. Coral Corporation collected $1,000,000 on a key person life insurance policy when its chief executive died. The corporation had paid the premiums on the policy of $77,000, which were not deductible by the corporation.

• the benefits are included in the company's taxable income, but the premiums paid are deductible

4. Juan collected $40,000 on a life insurance policy when his wife, Leona, died in 2020. The insurance policy was provided by Leona’s employer, and the premiums were excluded from Leona’s gross income as group term life insurance. In 2020, Juan also collected the $3,500 accrued salary owed to Leona at the time of her death.

• the life insurance policy proceeds are not taxable, but the accrued salaries are taxed