Question

Olaf was injured in an automobile accident and received $25,000 for his physical injury, $60,000 for his loss of income, and $10,000 for punitive damages. As a result of the award, the amount Olaf must include in gross income is: a. $10,000.

b. $50,000.
c. $60,000.
d. $85,000.
e. None of these.

Answer 1

Answer: the amount Olaf must include in gross income is $10,000.

Explanation: GROSS INCOME can be defined as income generated such as wages, salaries, profits, interest payments, rents, and other forms of earnings, before deducting expenses, taxes, insurances, etc.

From the question, it can be deduced that $25,000 received for physical injury, and $60,000 received for his loss of income can be categorised as an expense. $10,000 received for punitive damages is the only form of earning. Hence the $10,000 gross income.