Exam 17: Determination of Tax

Lewis, who is single, is claimed as a dependent on his parents' tax return. He received $2,000 during the year in dividends, which was his only income. What is his standard deduction for 2016?

Generally, itemized deductions are personal expenses specifically allowed by the tax law.

Which of the following is not considered support for the dependent support test?

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?

Silver Inc. is an S corporation. This year it earned $50,000 of taxable income and paid a $10,000 distribution to Daisy, its sole shareholder. Daisy has a marginal tax rate of 25%. Due to the corporation's results and the distribution paid, the IRS will receive total taxes of

Foreign exchange student Yung lives with Harold and Betty while he studies in the US. He moved into their home January 5, 2016 and has resided with them for the remainder of the year. Yung does not pay anything for his room and board. Harold and Betty provide all of Yung's meals. Yung receives a scholarship to pay for his tuition, books and fees. He works on campus, earning $4,000 a year. What tax issues should Harold and Betty consider?

A $10,000 gain earned on stock held 13 months is taxed in a more favorable manner than a $10,000 gain earned on stock held 11 months.

Avi and Rianna are considering marriage before year-end. They each earn a salary of about $150,000, have some investment income and some itemized deductions. What additional taxes will Avi and Rianna face as a married couple?

Indicate for each of the following the most favorable filing status for the 2016 tax year. a. Kenny died on March 2, 2015. Marge, his wife, and Bart, their son, survive. Marge filed a joint return in 2015. Bart, age 18 in 2016, is a part-time college student and continues to live at home with his mother. He works part-time, earning $6,200. What is Marge's filing status in 2016? b. Alan Spaulding is single and provides over 50% support of his niece Alicia who lives with him all year long. Alan maintains the household and claims Alicia as a dependent. Alicia makes $3,600 at a part-time job. She is a full-time student, age 18. What is Alan's filing status? c. Lily, who was divorced on July 27, 2015, provides 100% of the support for her parents who live in a nursing home in Kansas and have no income. What is Lily's filing status? d. Holly was abandoned by her husband Fletcher in September of the current year. She has not seen or communicated with him since then. What is Holly's filing status? e. Rick, whose wife died in December 2013, filed a joint tax return for 2013. He did not remarry, but has continued to maintain his home in which his two dependent children live. What is Rick's filing status for 2016?

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.

Keith, age 17, is a dependent of his parents. During 2016, he received $3,000 of dividend income. The parent's marginal rate is 28% and Keith's rate is 10%. Keith's tax is

A married person who files a separate return can claim a personal exemption for his spouse if the spouse is not the dependent of another and has

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?

Hannah is single with no dependents and has a salary of $102,000 for 2016, along with tax exempt interest income of $3,000 from a municipality. Her itemized deductions total $6,600. Required: Compute her taxable income.

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?

The amount of Social Security tax paid by the taxpayer will be a consideration in determining the refundable component of the child care credit for larger families.

All of the following items are generally excluded from income except

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?

A legally married same-sex couple can file a joint return.

Nonresident aliens are allowed a full standard deduction.