Jerry purchased an annuity contract at the beginning of 2003 for $144,000.The contract specified that he and his wife would receive $1,000 per month for life.Jerry receives his first payment on February 1,2016 when he is 59 years old and his wife is 56 years old.What amount of gross income should Jerry and his wife report on their 2016 income tax return from this annuity contract?

Question

Quizplus · Accepted Answer

Each monthly payment is $1,000, so for the year 2016, Jerry and his wife will receive $12,000 ($1,000 x 12 months). Since the payments are made jointly to Jerry and his wife, they will split the income equally. So Jerry will report $6,000 ($12,000 / 2) and his wife will report $6,000 on their 2016 income tax return. Therefore, the correct answer is (C) $6,600, assuming a tax rate of 10%.

Jerry Purchased an Annuity Contract at the Beginning of 2003