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

Regarding head of household filing status, comment on the following: a.A taxpayer qualifies even though he maintains a household which he and the dependent do not share. b.A taxpayer does not qualify even though the person sharing the household is a dependent. c.The usual eventual filing status of a surviving spouse.

Regarding the Tax Tables applicable to the Federal income tax, which of the following statements is correct?

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 nephew who lives with taxpayer.

Using borrowed funds from a mortgage on her home, Leah provides 52% of her own support, while her sons furnished the rest. Leah can be claimed as a dependent under a multiple support agreement.

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

Mr. Lee is a citizen and resident of Hong Kong, while Mr. Anderson is a citizen and resident of the U.S. In the taxation of income, Hong Kong uses a territorial approach, while the U.S. follows the global system. In terms of effect, explain what this means to Mr. Lee and Mr. Anderson.

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

In 2017, 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 2017.

Kyle, whose wife died in December 2014, filed a joint tax return for 2014. He did not remarry, but has continued to maintain his home in which his two dependent children live. What is Kyle's filing status in 2017?

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.

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

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 2016, but did not start itemizing until tax year 2017. Why the delay as to itemizing?

The Dargers have itemized deductions that exceed the standard deduction. However, when they file their joint return, they choose the standard deduction option. a.Is this proper procedure? b.Aside from a possible misunderstanding as to the tax law, what might be the reason for the Darger's choice?

Match the statements that relate to each other. Note: Some choices 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. -$1,050

Frank sold his personal use automobile for a loss of $9,000. He also sold a personal coin collection for a gain of $10,000. As a result of these sales, $10,000 is subject to income tax.

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

In applying the gross income test in the case of dependents that are married, could the application of community property laws have any effect? Explain.

In 2017, Ashley earns a salary of $55,000, has capital gains of $3,000, and receives interest income of $5,000. Her husband died in 2016. 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 2017.

In terms of timing as to any one year, the Tax Tables are available before the Tax Rate Schedules.

All exclusions from gross income are reported on Form 1040.