Jay, a Single Taxpayer, Retired from His Job as a Public

question 109

Multiple Choice

Jay, a single taxpayer, retired from his job as a public school teacher in 2018. He is to receive a retirement annuity of $1,200 each month and his life expectancy is 180 months. He contributed $36,000 to the pension plan during his 35- year career? so his adjusted basis is $36,000. Jay collected 192 payments before he died. What is the correct method for reporting the pension income?

• A) Since Jay is no longer working, none of the pension payments must be included in his gross income.
• B) The first $36,000 received is a nontaxable recovery of capital, and all subsequent annuity payments are taxable.
• C) The first $180,000 he receives is taxable and the last $36,000 is a nontaxable recovery of capital.
• D) All of the last 12 payments he received ($14,400) are taxable.
• E) None of these.

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Definitions:

Long-Term Investment

Investments in securities or other assets that a company intends to hold for a period exceeding one year to earn revenue or influence business operations.

Unrealized Loss

A decrease in the value of an investment that has not yet been sold for cash.

Trading Investments

Assets that a company holds primarily for the purpose of selling them in the near term to generate income.

Subsidiary Company

A company that is controlled by another company, known as the parent company, through majority ownership or significant influence.