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Exam 3: Computing the Tax

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Question 61

True/False

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An individual taxpayer uses a fiscal year March 1­February 28. The due date of this taxpayer's Federal income tax return is May 15 of each tax year.

A) True
B) False

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Question 62

Multiple Choice

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Match the statements that relate to each other. Note: Choice L may be used more than once. -Kiddie tax does not apply

A) Not available to 65-year old taxpayer who itemizes.
B) Exception for U.S. citizenship or residency test (for dependency exemption purposes) .
C) Largest basic standard deduction available to a dependent who has no earned income.
D) Considered for dependency exemption purposes.
E) Qualifies for head of household filing status.
F) A child (age 15) who is a dependent and has only earned income.
G) Considered in applying gross income test (for dependency exemption purposes) .
H) Not considered in applying the gross income test (for dependency exemption purposes) .
I) Unmarried taxpayer who can use the same tax rates as married persons filing jointly.
J) Exception to the support test (for dependency exemption purposes) .
K) A child (age 16) who is a dependent and has only unearned income of $4,500.
L) No correct match provided.

M) I) and L)
N) A) and H)

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Question 63

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An increase in a taxpayer's AGI could decrease the amount of charitable contribution that can be claimed.

During 2014, Lisa (age 66) furnished more than 50% of the support of the following persons: -Lisa's current husband who has no income and is not claimed by someone else as a dependent. -Lisa's stepson (age 19) who lives with her and earns $6,000 as a dance instructor. He dropped Out of school a year ago. -Lisa's ex­husband who does not live with her. The divorce occurred two years ago. -Lisa's former brother­in­law who does not live with her. Presuming all other dependency tests are met, on a separate return how many personal and dependency exemptions may Lisa claim?

In 2014, Cindy had the following transactions: $\begin{array}{lr}\text { Salary } & \$ 90,000 \\\text { Short-term capital gain from a stock investment } & 4,000 \\\text { Moving expense to change jobs } & (11,000) \\\text { Received repayment of } \$ 20,000 \text { loan she made to her sister in } 2009 \\\quad \text { (includes no interest) }& 20,000 \\\text { State income taxes }& (5,000) \end{array}$ Cindy's AGI is: $\begin{array}{l}\text { a. } \$ 114,000 \\\text { b. } \$ 103,000 \\\text { c. } \$ 8,000 \\\text { d. } \$ 4,000 \\\text { e. } \$ 3,000\end{array}$

Match the statements that relate to each other. Note: Choice L may be used more than once. -Age of a qualifying child

When married persons file a joint return, joint and several liability results. What does this mean?

Emily, whose husband died in December 2013, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2014? (Note: Emily is the executor of her husband's estate.)

Which of the following taxpayers may file as a head of household in 2014? Ron provides all the support for his mother, Betty, who lives by herself in an apartment in Fort Lauderdale. Ron pays the rent and other expenses for the apartment and properly claims his mother as a dependent. Tammy provides over one-half the support for her 18-year old brother, Dan. Dan earned $4,200 in 2014 working at a fast food restaurant and is saving his money to attend college in 2015. Dan lives in Tammy's home. Joe's wife left him late in December of 2013. No legal action was taken and Joe has not heard from her in 2014. Joe supported his 6-year-old son, who lived with him throughout 2014.

Under the Federal income tax formula for individuals, the determination of adjusted gross income (AGI) precedes that of taxable income (TI).

An "above the line" deduction refers to a deduction for AGI.

After paying down the mortgage on their personal residence, the Hills have found that their itemized deductions for each year are always slightly less than the standard deduction option. a. Explain what has happened. b. What remedy do you suggest?

After Ellie moves out of the apartment she had rented as her personal residence, she recovers her damage deposit of $1,000. The $1,000 is not income to Ellie.

Match the statements that relate to each other. Note: Choice L may be used more than once. -Scholarship funds for tuition

Jason and Peg are married and file a joint return. Both are over 65 years of age and Jason is blind. Their standard deduction for 2014 is $16,000 ($12,400 + $1,200 + $1,200 + $1,200).

Match the statements that relate to each other. Note: Choice L may be used more than once. -Global system of taxation

Merle is a widow, age 80 and blind, who is claimed as a dependent by her son. During 2014, she received $4,800 in Social Security benefits, $2,500 in bank interest, and $1,800 in cash dividends from stocks. Merle's taxable income is:

Regarding dependency exemptions, classify each statement in one of the four categories: -A stepdaughter who does not live with taxpayer.

During 2014, Sarah had the following transactions: $\begin{array}{llr} \text { Salary } &\$80,000\\ \text { Interest income on City of Baltimore bonds } &1,000\\ \text {Damages for personal injury (car accident) } &100,000\\ \text {Punitive damages (same car accident) } &200,000\\ \text { Cash dividends from Chevron Corporation stock } &7,000\\\end{array}$ Sarah's AGI is: A) $\$ 185,000$ B) $\$ 187,000$ C) $\$ 285,000$ D) $\$ 287,000$ E) $\$ 387,000$

Kim, a resident of Oregon, supports his parents who are residents of Canada but citizens of Korea. Kim can claim his parents as dependents.