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

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.

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

Wilma,age 70 and single,is claimed as a dependent on her daughter's tax return.During 2012,she had interest income of $2,400 and $800 of earned income from baby sitting.Wilma's taxable income is:

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.

Dan and Donna are husband and wife and file separate returns for the year.If Dan itemizes his deductions from AGI,Donna still can claim the standard deduction.

Using borrowed funds from a mortgage on her home,Leah provides 52% of her own support,while her sons furnished the rest.Leah cannot be claimed as a dependent under a multiple support agreement.

Homer (age 68)and his wife Jean (age 70)file a joint return.They furnish all of the support of Luther (Homer's 90-year old father),who lives with them.For 2012,they received $6,000 of interest income on city of Chicago bonds and interest income on corporate bonds of $48,000.Compute Homer and Jean's taxable income for 2012.

Tony,age 15,is claimed as a dependent by his grandmother.During 2012,Tony had interest income from Boeing Corporation bonds of $1,000 and earnings from a part-time job of $700.Tony's taxable income is:

The filing status of a taxpayer (e.g.,single,head of household)must be identified before taxable income is determined.

Which,if any,of the following is a correct statement relating to the kiddie tax?

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.

During 2012,Jackson had the following capital gains and losses:

A decrease in a taxpayer's AGI could decrease the amount of charitable contribution that can be claimed.

For the year a spouse dies,the surviving spouse is considered married for the entire year for income tax purposes.

Married taxpayers who file separately cannot later change to a joint return.

When separate income tax returns are filed by married taxpayers,one spouse cannot claim the other spouse as an exemption.

In 2012,Pierre had the following transactions: Pierre's AGI is:

In early 2012,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.

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

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