In 2022, Aurora received a $25,000 bonus computed as a percentage of profits. In 2023, Auroras employer determined that the
In 2022, Aurora received a $25,000 bonus computed as a percentage of profits. In 2023, Aurora’s employer determined that the 2022 profits had been incorrectly computed, and Aurora had to refund the $8,000 in 2023. Assume that Aurora was in the 35% tax bracket in 2022 but in the 12% bracket in 2023.
a. In 2022, how much is Aurora required to include in gross income?
b. In 2023, what is the amount of the deduction Aurora can claim? What is the reduction in taxes for 2023 as a result of the deduction?
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