Question

Steven received $100,000 cash from his company for his good work performance and he also received cash dividend in the amount of $5,000 from his inherited stock. Steven come to you to know his INCOME tax consequences from the above events. How would you advise him?

Note: You don't need to calculate tax liability, just itemize gross income and exclusions

Answer 1

The cash of $100,000 received from his company would be taxable as bonus and the amount of dividend, i.e. $5,000 shall also be added to calculate the amount of taxable income of Steven. Dividend receive on inherited stock is also taxable thus, along with the amount of bonus, i.e. $100,000 received from his company Steven would also have to take into consideration the amount of dividend received from his inherited stock to calculate his taxable income and resultant income tax liability.

Hence, both the bonus and dividend will be taxable income and accordingly, Steven would have to pay tax on his table income.

Gross income:

Bonus (Part of salary) $100,000

Dividend received       $5,000

Thus, gross taxable income $105,000.