Question

Fred is a full-time teacher. He has written a book and receives royalties from it. Fred's mother, Mabel, is age 65 and lives on her Social Security benefits and gifts from her son, Fred. This year Fred directed the publisher to make the royalty check payable to Mabel because she needs the money for support. Does Fred need to include the amount of the royalty check in his gross income.

1) True
2) False

Answer 1

Fred must include the amount of the royalty check in his gross income for tax purposes, even if he directs the publisher to make the check payable to his mother, Mabel.

Step-by-step explanation:

Regarding the scenario where Fred, a full-time teacher who also earns royalties from a book, directs his publisher to make a royalty check payable to his mother, Mabel: It is important to understand the tax implications of such an action. According to IRS rules, the income you earn, such as royalties, is typically taxable to you even if you give it to someone else. Hence, Fred would need to include the amount of the royalty check in his gross income, and the answer is 1) True. Changing the payee of the check does not change the fact that the income was earned by Fred, and therefore, he is responsible for reporting it on his tax return.