In 2019, Aurora received a $25,000 bonus computed as a percentage of profits. In 2020, Aurora's employer determined that the 2019 profits had been incor-rectly computed, and Aurora had to refund the $8,000 in 2020. Assume that Aurora was in the 35% tax bracket in 2019 but in the 12% bracket in 2020.

a. In 2019, how much is Aurora required to include in income?

b. In 2020, what is the amount of the deduction Aurora can claim? What is the reduction in taxes for 2020 as a result of the deduction?

Question

Business

Terrance Herrera

12 January, 19:01

In 2019, Aurora received a $25,000 bonus computed as a percentage of profits. In 2020, Aurora's employer determined that the 2019 profits had been incor-rectly computed, and Aurora had to refund the $8,000 in 2020. Assume that Aurora was in the 35% tax bracket in 2019 but in the 12% bracket in 2020.

a. In 2019, how much is Aurora required to include in income?

b. In 2020, what is the amount of the deduction Aurora can claim? What is the reduction in taxes for 2020 as a result of the deduction?

+5

Answers (1)

Know the Answer?

Salinas · Answer 1

Answers are explained below in the explanation part.

Explanation:

(a) In 2019, Aurora is required to add $25000 income because this was the amount that was transferred initially to employee from the employer.

(b) In 2020, Aurora can claim a deduction of $2800 (8000*35% = 2800). Now in 2020, Aurora will not be given reduction in taxes as she has claim amount due from taxes which she claimed of the extra taxes charged in year 2019.