Sharon had some insider information about a corporate takeover. She unintentionally informed a friend, who immediately bought the stock in the target corporation. The takeover occurred and the friend made a substantial profit from buying and selling the stock. The friend told Sharon about his stock dealings, and gave her a pearl necklace because she "made it all possible." The necklace was worth $10,000, but she already owned more jewelry than she desired.
a. The necklace is a nontaxable gift received by Sharon because the friend was not legally required to make the gift.
b. The value of the necklace is not included in Sharon's gross income unless she sells it.
c. The value of the necklace is not included in Sharon's gross income because passing the information was an illegal act and the SEC can confiscate the necklace.
d. The value of the necklace must be included in Sharon's gross income for the tax year it was received by her.
e. None of these.

The correct answer is d. The value of the necklace must be included in Sharon's gross income for the tax year it was received by her.

Explanation:

Understanding your sources of income is one of the starting points when creating a budget. Your annual gross income represents your total income before taxes or other deductions. The “net salary” represents your net income, specifically your income less taxes, credits, and deductions. Some common sources of income include:

Salaries, wages and tips: This is the money you earn from your job. When calculating your net income from wages and salaries, be sure to deduct contributions to 401 (k) plans that you choose to make.

Interest and dividends: You can earn interest income from your bank accounts, such as savings accounts and certificates of deposit (CDs). You can receive dividends if you have shares in a company.

Rental Income: Net rental income is the total amount of money you receive from rentals, after you have paid your property expenses.

Social Security: In 2012, approximately 56 million Americans will receive a total of $ 778 billion in Social Security Benefits.1

Miscellaneous Income: Other income may include unemployment compensation, gambling winnings, donations received, or money withdrawn from an IRA, 401 (k) plan, or pension.