Question

For each of the following independent situations, indicate the amount the taxpayer must include in gross income: (Leave no answer blank. Enter zero if applicable.)

a. Phil won $750 in the scratch-off state lottery. There is no state income tax.

b. Ted won a compact car worth $19,600 in a TV game show. Ted plans to sell the car next year.

c. Al Bore won the Nobel Peace Prize of $512,500 this year. Rather than take the prize, Al designated that the entire award should go to Weatherhead Charity, a tax-exempt organization.

d. Jerry was awarded $5,600 from his employer, Acme Toons, when he was selected most handsome employee for Valentine’s Day this year.

e. Ellen won a $1,260 cash prize in a school essay contest. The school is a tax-exempt entity, and Ellen plans to use the funds to pay her college education.

f. Gene won $525 in the office March Madness pool.

PLEASE EXPLAIN ANSWERS IN DETAIL SO I CAN LEARN HOW TO DO THIS

Answer 1

Answer:

a: All $750 is economic income realized this year and is, therefore, included in gross income.

b. The value of the car, $16,600, is economic income realized this year and is, therefore, included in gross income.

c. The entire award is excluded and therefore tax exempt. The award is excluded because it was for scientific, literary, or charitable achievement, and the taxpayer immediately transferred the award to a qualified charity.

d. All $5,600 is economic income realized this year and is, therefore, included in gross income.

e. All $1,260 is economic income realized this year and is, therefore, included in gross income.
f. Gene should include $525 in his gross income.