Jack Sage used the cash method of accounting. At the time of his death, he was entitled to receive $12,000 from clients for his services and he had accrued bond interest of $8,000, for a total income in respect of a decedent of $20,000. He also owed $5,000 for business expenses for which his estate is liable. The income and expenses are reported on Jack's estate tax return. The tax on Jack's estate is $9,460, after credits. The net value of the items included as income in respect of the decedent is $15,000 ($20,000 - $5,000). The estate tax determined without including the $15,000 in the taxable estate is $4,840, after credits. The estate tax that qualifies for the deduction is what amount

$4,620

Explanation:

Calculation for the income and expenses are reported on Jack's estate tax return.

First step is to calculate the net value of the items that was included as income

Using this formula

Net value=Total income in respect of a decedent- Business Expenses amount owed

Let plug in the formula

Net value= $20,000-$5,000

Net value=$15,000

Last step is to calculate the income and expenses that are reported on his estate tax return

Based on the above calculation the net value was the amount of $15,000 which means that standard taxable estate amount after credit will be $4,840. Hence the Estate tax deduction will be calculated as:

Estate tax return deduction=($15,000-$4,840) -$4,840

Estate tax return deduction= $9,460 −$4,840

Estate tax return deduction=$4,620

Therefore the income and expenses that are reported on Jack's estate tax return will be $4,620