Exam 3: Tax Formula and Tax Determination an Overview of Property Transactions

Under the Federal income tax formula for individuals,the determination of adjusted gross income (AGI)precedes that of taxable income (TI).

The Deweys are expecting to save on their taxes for 2016.Not only have both incurred large medical expenses,but both reached age 65.During the year,they also recognized a $30,000 loss on some land they sold which was purchased as an investment several years ago.Are the Deweys under a mistaken understanding regarding their tax position? Explain.

In order to claim a dependency exemption for other than a qualifying child,a taxpayer must meet the support test.Generally,this is done by furnishing more than 50% of a dependent's support.What exceptions exist,if any,where the support furnished need not be more than 50%?

Meg,age 23,is a full-time law student and is claimed by her parents as a dependent.During 2016,she received $1,400 interest income from a bank savings account and $6,100 from a part-time job.What is Meg's taxable income for 2016?

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 cousin who does not live with taxpayer.

Under what circumstances,if any,may an ex-spouse be claimed as a dependent?

Edgar had the following transactions for 2016: Salary $ 80,000 Alimony paid (4,000) Recovery from car accident- Personal injury damages $40,000 Punitive damages 70,000 110,000 Gift from parents 20,000 Property sales- Loss on sale of boat (used for pleasure and owned 4 years) ($4,000) Gain on sale of ADM stock (held for 10 months as an investment) 4,000 (-0-) What is Edgar's AGI for 2016?

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 2016 is $16,350 ($12,600 + $1,250 + $1,250 + $1,250).

Benjamin,age 16,is claimed as a dependent by his parents.During 2016,he earned $850 at a car wash.Benjamin's standard deduction is $1,400 ($1,050 + $350).

Regarding the tax formula and its relationship to Form 1040,which,if any,of the following statements is correct?

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

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

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. -An uncle who lives with taxpayer.

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. -Long-term capital gains

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. -Surviving spouse

During 2016,Lisa (age 66)furnished more than 50% of the support of the following persons: ∙ Lisa's current husband who has no income and is not claimed by someone else as a dependent. ∙ ​ Lisa's stepson (age 19)who lives with her and earns $6,000 as a dance instructor.He dropped out of school a year ago. ∙ Lisa's ex-husband who does not live with her.The divorce occurred two years ago. ∙ Lisa's former brother-in-law who does not live with her. Presuming all other dependency tests are met,on a separate return how many personal and dependency exemptions may Lisa claim?

Debby,age 18,is claimed as a dependent by her mother.During 2016,she earned $1,100 in interest income on a savings account.Debby's standard deduction is $1,450 ($1,100 + $350).

An individual taxpayer uses a fiscal year of March 1 to February 28.The due date of this taxpayer's Federal income tax return is May 15 of each tax year.

In 2016,Ashley earns a salary of $55,000,has capital gains of $3,000,and receives interest income of $5,000.Her husband died in 2015.Ashley has a dependent son,Tyrone,who is age 8.Her itemized deductions are $9,000. a.What is her filing status? b.Calculate Ashley's taxable income for 2016.

When can a taxpayer not use Form 1040EZ? Form 1040A?