Exam 2: Determination of Tax

Paige is starting Paige's Poodle Parlor and is considering alternative organizational forms.She anticipates the business will earn $100,000 from operating before compensating her for her services and before charitable contributions.Page,who is single,has $6,000 of income from other sources and other itemized deductions of $12,000.Her compensation for services will be $50,000.Charitable contributions to be made by the business are expected to be $5,000.Other distributions (dividends)to her from the business are expected to be $14,000. Required: Compare her current income tax assuming she operates the business as a proprietorship,an S corporation,and a C corporation.Ignore payroll and other taxes.

To qualify as an abandoned spouse,the taxpayer is not required to

Which of the following dependent relatives does not have to live in the same household as the taxpayer who is claiming head of household filing status?

Mary Ann pays the costs for her Aunt Hazel to live in a nursing home.Aunt Hazel receives Social Security benefits of $7,000 a year which are turned over to the nursing home.Mary Ann pays the remaining cost of $33,000.Hazel has no other income.Mary Ann visits Hazel twice a week and meets with doctors and nurses regarding Hazel's medical care.What tax issues should Mary Ann consider?

Steve and Jennifer are in the 33% tax bracket for ordinary income and the 15% bracket for capital gains.They have owned several blocks of stock for many years.They are considering the sale of two blocks of stock.The sale of one would produce a gain of $12,000 while the sale of the other would produce a loss of $18,000.For purposes of this problem,ignore personal exemptions,itemized deductions,phase-outs and additional investment taxes.They have no other gains and losses this year. a.How much tax will they save if they sell the block of stock that produces a loss? b.How much additional tax will they pay if they sell the block of stock that produces a gain? c.What will be the impact on their taxes if they sell both blocks of stock?

In 2016 Carol and Robert have salaries of $35,000 and $27,000,respectively.Their itemized deductions total $8,000.They are married,under 65,and live in a common law state. a.Compute their taxable income assuming that they file a joint return. b.Compute their taxable income assuming that they file separate returns and that Robert claims all of the itemized deductions.

Adam attended college for much of 2016,during which time he was supported by his parents.Erin married Adam in December 2016.They live in a common law state.Adam graduated and will commence work in January 2017.Erin worked during 2016 and earned $20,000.Adam's only income was interest of $1,100.Adam's parents are in the 28% tax bracket.Thus,claiming Adam as a dependent would save them $1,134 ($4,050 × .28). a.What is Erin and Adam's tax liability if they file a joint return? b.What is Erin and Adam's total tax liability if they file separate returns and Adam's parents claim him as a dependent?

If an individual with a marginal tax rate of 39.6% has a long-term capital gain,it is taxed at

An unmarried taxpayer may file as head of household if he maintains a home for his qualifying child.

Sally divorced her husband three years ago and has not remarried.Since the divorce she has maintained her home in which she and her now sixteen-year-old daughter reside.The daughter is a qualified child.Sally signed the dependency exemption over to her ex-spouse by filing the appropriate IRS form.What is Sally's filing status for the current year and how many exemptions may she claim?

Married couples will normally file jointly.Identify a situation where a married couple may prefer to file separately.

Carter dies on January 1,2016.A joint return election is made in 2016 and Marjorie properly qualifies as a surviving spouse for the two following years.Marjorie has one child that she claims as a dependent for this same period.The number of personal and dependency exemptions allowed Marjorie in 2016 and in 2017,respectively:

Gina Lewis,age 12,is claimed as a dependent on her parent's return.She is their only child.She earned $2,300 from a summer job.She also earned interest of $2,750.Her parents' marginal tax rate is 28 percent. Required: a.Compute the amount of Gina's tax liability for 2016. b.Can Gina's parents take a child tax credit for her?

In 2016,the standard deduction for a married taxpayer filing a joint return and who is 67 years old with a spouse who is 65 years old is

A building used in a business is sold after five years of use for a gain.The gain will be treated as a long-term capital gain.

Cheryl is claimed as a dependent on her parents' tax return.She had a part-time job during 2016 and earned $4,900 during the year,in addition to $600 of interest income.What is her standard deduction?

Form 4868,a six-month extension of time to file,allows a taxpayer to

The following information is available for Bob and Brenda Horton,a married couple filing a joint return,for 2016.Both Bob and Brenda are age 32 and have no dependents. a.What is the amount of their gross income? b.What is the amount of their adjusted gross income? c.What is the amount of their taxable income? d.What is the amount of their tax liability (gross tax)? e.What is the amount of their tax due or (refund due)?

Brett,a single taxpayer with no dependents,earns salary of $500,000 and dividend income of $50,000.Itemized deductions for home mortgage interest,property taxes and charitable contributions total $35,000.Calculate Brett's total federal income tax liability for 2016.

Julia provides more than 50 percent of the support for three individuals: Theresa,an unrelated child who lives with Julia all year long;Margaret,Julia's cousin,who lives in another city;and Emma,Julia's daughter who lives in her own home.Each of the potential dependents earned less than $4,050.How many dependency exemptions can Julia claim on her 2016 tax return?