Exam 16: Introduction to the Taxation of Individuals

Linda,who has AGI of $120,000 in 2013,contributes stock in Mauve Corporation (a publicly traded corporation)to the Salvation Army,a qualified charitable organization.The stock is worth $65,000,and Linda acquired it as an investment four years ago at a cost of $50,000.

In terms of the tax formula applicable to individual taxpayers,which,if any,of the following statements is correct?

Wilma,age 70 and single,is claimed as a dependent on her daughter's tax return.During 2013,she had interest income of $2,500 and $800 of earned income from baby sitting.Wilma's taxable income is:

In 2013,Khalid was in an automobile accident and suffered physical injuries.The accident was caused by Rashad's negligence.Khalid threatened to file a lawsuit against Amber Trucking Company,Rashad's employer,claiming $50,000 for pain and suffering,$90,000 for loss of income,and $70,000 in punitive damages.Amber's insurance company will not pay punitive damages; therefore,Amber has offered to settle the case for $100,000 for pain and suffering,$90,000 for loss of income,and nothing for punitive damages.Khalid is in the 35% marginal tax bracket.What is the after-tax difference to Khalid between Khalid's original claim and Amber's offer?

In 2006,Ross,who is single,purchased a personal residence for $170,000 and took out a mortgage of $100,000 on the property.In May of the current year,when the residence had a fair market value of $220,000 and Ross owed $70,000 on the mortgage,he took out a home equity loan for $110,000.He used the funds to purchase a BMW for himself and a Lexus SUV for his wife.For both vehicles,100% of the use is for personal activities.What is the maximum amount on which Ross can deduct home equity interest?

Which,if any,of the statements regarding the standard deduction is correct?

During 2013,Esther had the following transactions: Esther's AGI is:

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 2013 is $15,800 ($12,200 + $1,200 + $1,200 + $1,200).

Many taxpayers who previously itemized will start claiming the standard deduction when they purchase a home.

Theresa sued her former employer for age,race,and gender discrimination.She claimed $200,000 in damages for loss of income,$300,000 for emotional harm,and $500,000 in punitive damages.She settled the claim for $700,000.As a result of the settlement,Theresa must include in gross income:

Judy paid $40 for Girl Scout cookies and $40 for Boy Scout popcorn.Judy may claim an $80 charitable contribution deduction.

Debby,age 18,is claimed as a dependent by her mother.During 2013,she earned $1,100 in interest income on a savings account.Debby's standard deduction is $1,450 ($1,100 + $350).

For the year a spouse dies,the surviving spouse is considered married for the entire year for income tax purposes.

The education tax credits (i.e.,the American Opportunity credit and the lifetime learning credit)are available to help defray the cost of higher education regardless of the income level of the taxpayer.

Howard,age 82,dies on January 2,2013.On Howard's final income tax return,the full amount of the basic and additional standard deductions will be allowed even though Howard lived for only 2 days during the year.

A child who has unearned income of $2,000 or less cannot be subject to the kiddie tax.

Assuming a taxpayer qualifies for the exclusion treatment,the interest income on educational savings bonds:

Brad,who uses the cash method of accounting,lives in a state that imposes an income tax (including withholding from wages).On April 14,2013,he files his state return for 2012,paying an additional $600 in state income taxes.During 2013,his withholdings for state income tax purposes amount to $3,550.On April 13,2014,he files his state return for 2013 claiming a refund of $800.Brad receives the refund on June 3,2014.If he itemizes deductions,how much may Brad claim as a deduction for state income taxes on his Federal income tax return for calendar year 2013 (filed in April 2014)?

Under the terms of a divorce agreement,Kim was to pay her husband Tom $7,000 per month in alimony.Kim's payments will be reduced to $3,000 per month when their 9 year-old son becomes 21.The husband has custody of their son.For a twelve-month period,Kim can deduct from gross income (and Tom must include in gross income):

Under the income tax formula,a taxpayer must choose between deductions for AGI and the standard deduction.