Exam 3: Computing the Tax

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

After her divorce, Hope continues to support her ex-husband's sister, Cindy, who does not live with her.Hope can claim Cindy as a dependent.

Since an abandoned spouse is treated as single and has one or more dependent children, he or she qualifies for the standard deduction available to head of household.

In January 2012, Jake's wife dies and he does not remarry.For tax year 2012, Jake may not be able to use the filing status available to married persons filing joint returns.

Claude's deductions from AGI slightly exceed the standard deduction allowed for 2012.Under these circumstances, Claude cannot claim the standard deduction.

The Martins have a teenage son who has become an accomplished bagpiper.With proper promotion and scheduling, the son has good income potential by charging for his services at special events (particularly funerals).However, the Martins are fearful that the income could generate a kiddie tax and cause them the loss of a dependency exemption deduction.Are the Martins' concerns justified? Explain.

Heloise, age 74 and a widow, is claimed as a dependent by her daughter.For 2012, 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 2012?

For 2012, Stuart has a short-term capital loss, a collectible long-term capital gain, and a long-term capital gain from land held as investment.The short-term loss is first applied to the collectible capital gain.

For dependents who have income, special filing requirements apply.

The Deweys are expecting to save on their taxes for 2012.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.

The additional standard deduction for age and blindness is not the same amount for single as for married taxpayers.

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.

Kyle and Liza are married and under 65 years of age.During 2012, they furnish more than half of the support of their 19-year old daughter, May, who lives with them.She graduated from high school in May 2011. May earns $15,000 from a part-time job, most of which she sets aside for future college expenses.Kyle and Liza also provide more than half of the support of Kyle's cousin who lives with them.Liza's father, who died on January 3, 2012, at age 90, has for many years qualified as their dependent.How many personal and dependency exemptions should Kyle and Liza claim?

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

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.

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

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.

Even if the individual does not spend funds that have been received from another source (e.g., interest on municipal bonds), the unexpended amounts are considered for purposes of the support test.

In 2012, Warren 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, $1,000 is subject to income tax.

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