Question

Lola, age 67, began receiving a $1,000 monthly annuity in the current year upon the death of her husband. She received seven payments in the current year. Her husband contributed $48,300 to the qualified employee plan.

Use the Simplified Method Worksheet below to calculate Lola's taxable amount from the annuity.
If your answer is zero, enter "0". If required, round your answers to the nearest whole dollar.
Simplified Method Worksheet
1. Enter total amount received this year.
1. $________
2. Enter cost in the plan at the annuity starting date.
2. $_______
3. Age at annuity starting date
Enter
55 and under 360
56–60 310
61–65 260
66–70 210
71 and older 160
3.________
4. Divide line 2 by line 3.
4. $______
5. Multiply line 4 by the number of monthly payments this year. If the annuity starting date was before 1987, also enter this amount on line 8, and skip lines 6 and 7. Otherwise, go to line 6.
5. $______
6. Enter the amount, if any, recovered tax-free in prior years.
6. $______
7. Subtract line 6 from line 2.
7. $______
8. Enter the smaller of line 5 or 7.
8. $______
9. Taxable amount this year: Subtract line 8 from line 1. Do not enter less than zero.
9. $______

Answer 1

1.$7,000

2.$48,300

3.210

4.$230

5.$1,610

6.$0

7.$48,300

8.$1,610

9.$5,390

Step-by-step explanation:

1. The total amount lola will received this year will be:

$1,000 monthly annuity*7 payments in the current year

=$7,000

2. The cost in the plan at the annuity starting date will be :

$48,300

3. The Age at annuity starting date will be 210 because Lola age is 67 in which age 66–70 is 210

4. When we Divide line 2 by line 3 we would have $230 calculated as

$48,300/210=$230

5. In a situation where we Multiply line 4 by the number of monthly payments this year we would have $1,610 calculated as:

$230*7=1,610

6. We have $0 recovered tax-free in prior years.

7. When we Subtract line 6 which is $0 from line 2 which is $48,300 we would have $48,300.

$48,300-$0=$48,300

8. The smaller of line 5 which is 1,610 or 7 which is $48,300 will be $1,610

9. The Taxable amount this year will be calculated as the Subtraction of line 8 which is $1,610 from line 1 which is $7,000 we would have $5,390

$7,000-$1,610=$5,390