Income Calculation for Tax Purposes
What is Fred's total income for tax purposes this year?
A) $80,000
B) $82,000
C) $75,000
D) $77,000
Answer:
Fred's total taxable income, which includes his salary, interest income, and capital gain, amounts to $77,000 excluding the non-taxable inheritance.
Explanation:
To calculate Fred's total income for tax purposes, we should include all taxable sources of income. His salary of $70,000 is taxable, as is the interest income of $3,000 and the capital gain of $4,000 from selling stock. The inheritance is generally not taxable for federal income tax purposes, so we should exclude the $5,000 inheritance from the total. Adding up the taxable income sources, we get a total of $77,000 ($70,000 + $3,000 + $4,000), which corresponds to option D in the question provided.