If Bart were to pass away this year, how much would Betty Ann receive from the l
ID: 2593757 • Letter: I
Question
If Bart were to pass away this year, how much would Betty Ann receive from the life insurance policy? How much would she be required to claim on her federal income tax? Explain your answers fully.
Tax Item
Amount
Bart’s Earnings
$110,000
Betty Ann’s Earnings
$125,000
Federal Tax Withholdings
$22,700
State Income Tax Withholdings
$10,750
FICA & M/C
$17,978
Savings Account Interest (3.0% per year)
$3,200
State Refund from Prior Year
$2,425
Home Mortgage Interest Paid
$12,500
Real Estate Taxes Paid
$24,000
Charitable Contributions
$3,000
Unreimbursed Medical Expenses
$1,800
Stock Ownership: United Motor Company (purchased 9 months ago & which they still hold)
Current Value: $4,000
Cost basis: $8,000
Whole Life Insurance Policy
Face Value: $1,000,000
Cash Value: $15,000
Owner: Bart
Beneficiary: Betty Ann
Insured: Bart
Policy Dividend: $300
Tax Item
Amount
Bart’s Earnings
$110,000
Betty Ann’s Earnings
$125,000
Federal Tax Withholdings
$22,700
State Income Tax Withholdings
$10,750
FICA & M/C
$17,978
Savings Account Interest (3.0% per year)
$3,200
State Refund from Prior Year
$2,425
Home Mortgage Interest Paid
$12,500
Real Estate Taxes Paid
$24,000
Charitable Contributions
$3,000
Unreimbursed Medical Expenses
$1,800
Stock Ownership: United Motor Company (purchased 9 months ago & which they still hold)
Current Value: $4,000
Cost basis: $8,000
Whole Life Insurance Policy
Face Value: $1,000,000
Cash Value: $15,000
Owner: Bart
Beneficiary: Betty Ann
Insured: Bart
Policy Dividend: $300
Explanation / Answer
Betty will receive the face value of the insurance policy amount on death of bart.
Life insurance proceeds received because of someone's death is not reported as income on the income tax return.
Hence she will claim nothing related to insurance amount on the return as income.