Question

In 2019, Theresa was in an automobile accident and suffered physical injuries. The accident was caused by Ramon's negligence. In 2020, Theresa collected from his insurance company. She received $15,000 for loss of income, $10,000 for pain and suffering, $50,000 for punitive damages, and $6,000 for medical expenses that she had deducted on her 2019 tax return (the amount in excess of 10% of adjusted gross income). As a result of this, Theresa's 2020 gross income is increased by $56,000. True False

Answer 1

True

Step-by-step explanation:

The loss of income was refunded from the insurance company and must not appear in the gross income because tax rules gives benefits of such payment receipts. Furthermore, the compensation for suffering and pain is also disallowed expense under the tax rule.

The punitive damages must appear as income in the tax returns and the medical expenses that the person paid initially and set it off in the tax return 2019, must now appear as income because previously it was deducted.

So the total gross income under the tax rules = $50,000 + $6,000

Gross Income = $56,000