Exam 3: Computing the Tax

The Hutters filed a joint return for 2018. They provide more than 50% of the support of Carla, Ellie, and Aaron. Carla (age 18) is a cousin and earns $2,800 from a part-time job. Ellie (age 25) is their daughter and is a full-time law student. She received a $7,500 scholarship for tuition from her law school. Aaron is a brother who is a citizen of Israel but resides in France. Carla and Ellie live with the Hutters. How many dependents can the Hutters claim?

Michaella, age 23, is a full-time law student and is claimed by her parents as a dependent. During 2018, she received $1,400 interest income from a bank savings account and $11,800 from a part-time job. What is Michaella's taxable income for 2018?

Match the statements that relate to each other. Note: Choice l. may be used more than once. a. Available to a 70-year-old father claimed as a dependent by his son. b. Equal to tax liability divided by taxable income. c. The highest income tax rate applicable to a taxpayer. d. Not eligible for the standard deduction. e. No one qualified taxpayer meets the support test. f. Taxpayer's ex-husband does not qualify. g. A dependent child (age 18) who has only unearned income. h. Highest applicable rate is 37%. i. Applicable rate could be as low as 0%. j. Maximum rate is 28%. k. No correct match provided. -Tax Rate Schedule

In satisfying the support test and the gross income test for claiming someone as a dependent, a scholarship received by the person being claimed is handled the same way for each test. Do you agree or disagree with this statement? Why?

The kiddie tax does not apply to a child whose earned income is more than one-half of his or her support.

Darren, age 20 and not disabled, earns $4,300 during 2018. Darren's parents cannot claim him as a dependent unless he is a full-time student.

Evan and Eileen Carter are husband and wife and file a joint return for 2018. Both are under 65 years of age. They provide more than half of the support of their daughter, Pamela (age 25), who is a full-time medical student. Pamela receives a $5,000 scholarship covering her tuition at college. They furnish all of the support of Belinda (Evan's grandmother), who is age 80 and lives in a nursing home. They also support Peggy (age 66), who is a friend of the family and lives with them. How many dependents may the Carters claim?

In 2018, Hal furnishes more than half of the support of his ex-wife and her father, both of whom live with him. The divorce occurred in 2017. Hal may claim the father-in-law and the ex-wife as dependents.

Contrast the tax consequences resulting from the following filing status situations: a. Married filing jointly versus married filing separately. b. Married filing separately versus single. c. Married filing separately versus abandoned spouse status.

All exclusions from gross income are reported on Form 1040.

Ashley had the following transactions during 2017:

For 2018, Tom has taxable income of $48,005. When he uses the Tax Tables, Tom finds that his tax liability is higher than under the Tax Rate Schedules. a. Why is there a difference? b. Can Tom use the Tax Rate Schedules?

Howard, age 82, dies on January 2, 2018. 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.

In determining whether the gross income test is met for determining dependency status, only the taxable portion of a scholarship is considered.

Ayla, age 17, is claimed by her parents as a dependent. During 2018, she had interest income from a bank savings account of $2,000 and income from a part-time job of $4,200. Ayla's taxable income is:

Mel is not quite sure whether an expenditure he made is a deduction for AGI or a deduction from AGI. Since he plans to choose the standard deduction option for the year, does the distinction matter? Explain.

Match the statements that relate to each other. Note: Choice l. may be used more than once. a. Available to a 70-year-old father claimed as a dependent by his son. b. Equal to tax liability divided by taxable income. c. The highest income tax rate applicable to a taxpayer. d. Not eligible for the standard deduction. e. No one qualified taxpayer meets the support test. f. Taxpayer's ex-husband does not qualify. g. A dependent child (age 18) who has only unearned income. h. Highest applicable rate is 37%. i. Applicable rate could be as low as 0%. j. Maximum rate is 28%. k. No correct match provided. -Kiddie tax may be imposed

In 2018, Tom is single and has AGI of $50,000. He is age 70, has no dependents, and has itemized deductions (i.e.,from AGI) of $7,000. Determine Tom's taxable income for 2018.

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

Which, if any, of the following is a deduction for AGI?