Reference no: EM132655459

Problem - Rusty has been experiencing serious financial problems. His annual salary was $100,000, but a creditor garnished his salary for $20,000; so the employer paid the creditor (rather than Rusty) the $20,000. To prevent creditors from attaching his investments, Rusty gave his investments to his 21-year-old daughter, Rebecca. Rebecca received $5,000 in dividends and interest from the investments during the year. Rusty transferred some cash to a Swiss bank account that paid him $6,000 interest during the year. Rusty did not withdraw the interest from the Swiss bank account. Rusty also hid some of his assets in his wholly owned corporation that received $150,000 rent income but had $160,000 in related expenses, including a $20,000 salary paid to Rusty. Rusty reasons that his gross income should be computed as follows:

Salary received $80,000

Loss from rental property ($150,000-$160,000) (10,000)

Gross income $70,000

Required - Compute Rusty's correct gross income for the year, and explain any differences between your calculation and Rusty's.