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

In resolving qualified child status for dependency exemption purposes, why are tiebreaker rules necessary? Can these rules be waived?

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.

Regarding the rules applicable to filing of income tax returns, which, if any, of the following is an incorrect statement:

Evan and Eileen Carter are husband and wife and file a joint return for 2017. 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 dependency exemptions may the Carters claim?

Maude's parents live in another state and she cannot claim them as her dependents. If Maude pays their medical expenses, can she derive any tax benefit from doing so? Explain.

During the year, Irv had the following transactions: How are these transactions handled for income tax purposes?

Heloise, age 74 and a widow, is claimed as a dependent by her daughter. For 2017, 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 2017?

Adjusted gross income (AGI) sets the ceiling or the floor for certain deductions. Explain and illustrate what this statement means.

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. -Kiddie tax applies

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?

Albert buys his mother a TV. For purposes of meeting the support test, Albert cannot include the cost of the TV.

Ed is divorced and maintains a home in which he and a dependent friend live. Ed does not qualify for head of household filing status.

Lee, a citizen of Korea, is a resident of the U.S. Any rent income Lee receives from land he owns in Korea is not subject to the U.S. income tax.

During 2017, Marvin had the following transactions: Marvin's AGI is:

Pedro is married to Consuela, who lives with him. Both are U.S. citizens and residents of Nebraska. Pedro furnishes all of the support of his parents, who are citizens and residents of Mexico. He also furnishes all of the support of Consuela's parents, who are citizens and residents of El Salvador. Consuela has no gross income for the year. If Pedro files as a married person filing separately, how many personal and dependency exemptions can he claim on his return?

Which of the following items, if any, is deductible?

Katrina, age 16, is claimed as a dependent by her parents. During 2017, she earned $5,600 as a checker at a grocery store. Her standard deduction is $5,950 ($5,600 earned income + $350).

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. -Kiddie tax may be imposed

Millie, age 80, is supported during the current year as follows: During the year, Millie lives in an assisted living facility. Under a multiple support agreement, indicate which parties can qualify to claim Millie as a dependent.

Adjusted gross income (AGI) appears at the bottom of page 1 and at the top of page 2 of Form 1040.