Exam 3: Computing the Tax

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 niece who lives with taxpayer,is 20 years old,earns $5,000,and is a full-time student.

Because they appear on page 1 of Form 1040,itemized deductions are also referred to as "page 1 deductions."

For 2017,Tom has taxable income of $48,005.When he uses the Tax Tables,Tom finds that his tax liability is higher than under the Tax Rate Schedules. a.​Why is there a difference? b.Can Tom use the Tax Rate Schedules?

The basic and additional standard deductions both are subject to an annual adjustment for inflation.

In early 2017,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.

Kirby is in the 15% tax bracket and had the following capital asset transactions during 2017: Kirby's tax consequences from these gains are as follows:

Kyle and Liza are married and under 65 years of age.During 2017,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 2016.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 3,2017,at age 90,has for many years qualified as their dependent.How many personal and dependency exemptions should Kyle and Liza claim?

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 ex-husband (divorce occurred last year) who lives with taxpayer.

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. -Multiple support agreement

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

When the kiddie tax applies,the child need not file an income tax return because the child's income will be reported on the parents' return.

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 does not apply

Married taxpayers who file a joint return cannot later (i.e.,after the filing due date) switch to separate returns for that year.

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. 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. -Average income tax rate

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

Emily had the following transactions during 2016: What is Emily's AGI for 2017?

Once a child reaches age 19,the kiddie tax no longer applies.

In determining whether the gross income test is met for dependency exemption purposes,only the taxable portion of a scholarship is considered.

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.