An individual taxpayer had the following transactions during the current year:Workers’ compensation payments$30,000Damages received for slander40,000Loss on the sale of a personal residence75,000W-2 wages80,000What is the taxpayer’s adjusted gross income?
Question
An individual taxpayer had the following transactions during the current year:Workers’ compensation payments$30,000Damages received for slander40,000Loss on the sale of a personal residence75,000W-2 wages80,000What is the taxpayer’s adjusted gross income?
Solution
To calculate the taxpayer's adjusted gross income (AGI), we need to add up all the taxable income sources.
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Workers’ compensation payments: $30,000 - This is generally not included in taxable income, so we will not count it towards the AGI.
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Damages received for slander: $40,000 - This is considered taxable income, so we will include it in the AGI.
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Loss on the sale of a personal residence: $75,000 - This is not a source of income but a loss, so it does not count towards the AGI.
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W-2 wages: $80,000 - This is taxable income, so we will include it in the AGI.
Adding up the taxable income sources, we get:
80,000 (W-2 wages) = $120,000
So, the taxpayer’s adjusted gross income is $120,000.
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