Exam 3: Computing the Tax

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

Heloise,age 74 and a widow,is claimed as a dependent by her daughter.For 2015,she had income as follows: $2,500 interest on municipal bonds;$3,200 Social Security benefits;$3,000 income from a part-time job;and $2,800 dividends on stock investments.What is Heloise's taxable income for 2015?

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 39.6%.i.Applicable rate could be as low as 0%.j.Maximum rate is 28%.k.Income from foreign sources is not subject to tax.l.No correct match provided. -Multiple support agreement

Since an abandoned spouse is treated as not married and has one or more dependent children,he or she qualifies for the standard deduction available to head of household.

During the current year,Doris received a large gift from her parents and a sizeable inheritance from an uncle.She also paid premiums on an insurance policy on her life.Doris is confused because she cannot find any place on Form 1040 to report these items.Explain.

Taylor had the following transactions for 2015: Salary $ 85,000 Moving expenses incurred to change jobs (12,000) Inheritance received from deceased uncle 300,000 Life insurance proceeds from policy on uncle's life (Taylor was named the beneficiary) 200,000 Cash prize from church raffle 3,000 Payment of church pledge (4,500) What is Taylor's AGI for 2015?

Arnold is married to Sybil,who abandoned him in 2014.He has not seen or communicated with her since April of that year.He maintains a household in which their son,Evans,lives.Evans is age 25 and earns over $6,000 each year.For tax year 2015,Arnold's filing status is:

In early 2015,Ben sold a yacht,held for 9 months and for pleasure,for a $5,000 gain.Concerned about offsetting the gain before year-end,Ben is considering selling one of the following-each of which would yield a $5,000 loss: ∙ Houseboat used for recreation. ∙ Truck used in business. ∙ Stock investment held for 13 months. Evaluate each choice.

A child who has unearned income of $2,100 or less cannot be subject to the kiddie tax.

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 39.6%.i.Applicable rate could be as low as 0%.j.Maximum rate is 28%.k.Income from foreign sources is not subject to tax.l.No correct match provided. -Tax Rate Schedule

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 39.6%.i.Applicable rate could be as low as 0%.j.Maximum rate is 28%.k.Income from foreign sources is not subject to tax.l.No correct match provided. -Gain on collectibles (held more than one year)

Perry is in the 33% tax bracket.During 2015,he had the following capital asset transactions: Gain from the sale of a stamp collection (held for 10 years) $30,000 Gain from the sale of an investment in land (held for 4 years) 10,000 Gain from the sale of stock investment (held for 8 months) 4,000 Perry's tax consequences from these gains are as follows:

A decrease in a taxpayer's AGI could increase the amount of medical expenses that can be deducted.

In which,if any,of the following situations may the individual not be claimed as a dependent of the taxpayer?

Currently,the top income tax rate in effect is not the highest it has ever been.

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 39.6%.i.Applicable rate could be as low as 0%.j.Maximum rate is 28%.k.Income from foreign sources is not subject to tax.l.No correct match provided. -Global system of taxation

Regarding dependency exemptions, classify each statement in one of the four categories: a.Could be a qualifying child.b.Could be a qualifying relative.c.Could be either a qualifying child or a qualifying relative.d.Could be neither a qualifying child nor a qualifying relative. -A son lives with taxpayer and earns $3,000.

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?

When filing their Federal income tax returns,the Youngs always claimed the standard deduction.After they purchased a home,however,they started to itemize their deductions from AGI. a.Explain the reason for the change. b.​ Suppose they purchased the home in November 2014,but did not start itemizing until tax year 2015.Why the delay as to itemizing?

Katrina,age 16,is claimed as a dependent by her parents.During 2015,she earned $5,600 as a checker at a grocery store.Her standard deduction is $5,950 ($5,600 earned income + $350).