A taxpayer, age 64, purchases an annuity from an insurance company for $82,000. She is to receive $683 per month for life. Her life expectancy is 20.8 years from the annuity starting date. Assuming that she receives $8,200 this year, what is the exclusion percentage and how much is included in her gross income

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Reina Blankenship

1 May, 23:18

A taxpayer, age 64, purchases an annuity from an insurance company for $82,000. She is to receive $683 per month for life. Her life expectancy is 20.8 years from the annuity starting date. Assuming that she receives $8,200 this year, what is the exclusion percentage and how much is included in her gross income

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Zoey · Answer 1

Exclusion Percentage = 48.10%

Included in income = $4256

Explanation:

The exclusion percentage can be calculated using the following formula:

=> Exclusion Percentage = Investment in Total / (Payments made * Life Expectancy * Total months in a year)

=> Exclusion Percentage = $82,000 / ($683 * 20.8 * 12)

=> Exclusion Percentage = 0.4810 = 48.10% (Rounded off to two decimal places)

(Included in income):

The Included in income amount can be calculated using the following formula:

=> Included in Income = (Received amount - Return on Capital) (Edited to accomodate changes)

& Return on Capital = (Received amount * Exclusion percentage) (Edited to accomodate changes)

=> ROC = $8200 * 0.481 = 3944.2 (Edited to accomodate changes)

=> Included in income = ($8200) - 3944.2 = 4255.80 = > 4256 (Rounded off to nearest dollar amount)