# Donald was killed in an accident while he was on the job in 2015. Darlene, Donald's wife,...

## Question:

Donald was killed in an accident while he was on the job in 2015. Darlene, Donald's wife, received several payments as a result on Donald's deaths. What is Darlene's gross income from the items listed below?

a. Donald's employer paid Darlene and amount equal to Donald's 3 months' salary ($60,000) which is what the employer does for all widows and widowers of deceased employees. b. Donald had$20,000 in accrued salary that was paid to Darlene

c. Donald's employer had provided Donald with group term life insurance of $480,000 (twice his annual salary), which was payable to his widow in a lump sum. Premiums on his policy totaling$12,500 had been included in Donald's gross income under 79

d. Donald had purchased a life insurance policy (premiums totaled $250,000) that paid$60,000 in the even of accidental death. The proceeds were payable to Darlene, who elected to receive installment payment as an annuity of $30,000 each year for a 25 year period. She received her first installment this year. ## Gross Income Gross income is described as the income which is taken out before any adjustment of taxes. It is generally known as the before-tax income. In another concept, it is the sum of the individual's income, which includes salaries, wages, profits, and many other earnings before any deductions. ## Answer and Explanation:  Details Amount Received Amount Taxable a. Employment paymentsb. Accrued salary, earned before deathc. Group term life insurance proceedsd. Life insurance proceeds, annuity$ 60,000$20,000$ 480,000$30,000$ 60,000$20,000-$ 6,000(W.N) Gross Income $590,000$ 86,000

Darlene?s Gross Income is $85,000 Working Note: Calculation of taxable amount of life insurance proceeds annuity For that we first expected return We have, Payment as annuity is$ 30,000

Year is 25 years

{eq}\begin{align*} {\rm{Expected}}\;{\rm{return}} &= {\rm{30,000}} \times {\rm{25}}\\ &= {\rm{750,000}} \end{align*} {/eq}

Now we have to calculate recovery of capital

For that we have,

Investment in contract 60,000 Annual proceeds 30,000 Expected return 750,000 {eq}\begin{align*} {\rm{Recovery}}\;{\rm{of}}\;{\rm{capital}} &= \dfrac{{{\rm{Investment}}\;{\rm{in}}\;{\rm{contract}}}}{{{\rm{Expected}}\;{\rm{return}}}} \times {\rm{Annual}}\;{\rm{Proceeds}}\\ &= \dfrac{{60,000}}{{750,000}} \times 30,000\\ &= 24,000 \end{align*} {/eq} Now we calculate taxable amount of life insurance proceeds, annuity  Details Amount Annual ProceedsLess: Recovery of capital 30,000($24,000) Total$ 6,000