Bret carries a $200,000 insurance policy on his life and has paid premiums of $10,000 over the years.Dividends on the policy have totaled $8,500.Each year Bret has left the dividends with the insurance company.In the current year,the insurance company credited $800 of interest on the accumulated dividends to Bret's account.In addition,$600 of dividends was added by the insurance company.In the current year,Bret must report income of

Question

Quizplus · Accepted Answer

The dividends and interest credited to Bret's account are considered taxable income only if they exceed the total premiums paid on the policy. In this case, the total of premiums paid ($10,000) is less than the total dividends received ($8,500 + $600 = $9,100) plus the interest credited ($800), which means Bret must report taxable income of $800.

Bret Carries a $200,000 Insurance Policy on His Life and Has