Explain Why the Taxpayer in Each of the Following Situations

question 113

Essay

Explain why the taxpayer in each of the following situations either does or does not have taxable income and determine the amount,if any,that the taxpayer would have to recognize.
a.On December 1, 2016, Tomlin, a cash basis taxpayer, bills a customer $5,000 for services rendered throughout 2016. The customer comes to Tomlin's office on December 30, 2016, and offers to pay him the $5,000 amount owed. Tomlin suggests that the customer mail the check to him so he could see how quickly the post office could get the check to him through the mail. The post office delivers the check to Tomlin on January 10, 2017. Tomlin promptly deposits the check in the bank.
b.Patty, age 65, will retire this year. Twenty years ago she purchased a retirement annuity contract at a cost of $6,000. Under the terms of the contract, Patty is to receive $150 per month for 10 years after reaching age 65. During the current year, Patty receives $1,200 (8 payments).
c.Bud is an accountant for Big Oil Company. In his spare time, Bud collects unique beer cans and bottles. During a party at his house, one of his friends tells him that his can of Billy Beer is a hot item in the professional collector's market. Bud investigates and instead of selling the Billy Beer, he trades the can of Billy Beer for a bottle of Leinenkugles beer.
d.Rosemary is awarded the "Outstanding Teaching Award" at DePauw University. She receives a plaque and $3,500. She assigns the $3,500 to DePauw to establish a scholarship for economics majors.

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Definitions:

Drug

A substance used to diagnose, treat, cure, or prevent diseases in humans or animals, often regulated by health authorities.

Metric Equivalent

The corresponding value of a unit of measure expressed in the International System of Units (SI).

Liter

A metric unit of volume equivalent to 1,000 cubic centimeters or about 0.26 gallons.

Household Measurement

A system of units used in everyday domestic tasks, such as cooking and home repair, often including tablespoons, cups, meters, and feet.