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Exam 3: Computing the Tax

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Question 31

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

A) True
B) False

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Question 32

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Regarding classification as a dependent, 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 daughter-in-law who lives with taxpayer.

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Question 33

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

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

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

Harpreet, whose husband died in December 2017, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2018? (Note: Harpreet is the executor of her husband's estate.)

Deductions for AGI are often referred to as "above-the-line" or "page 1" deductions. Explain.

In early 2018, 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.

Married taxpayers who file separately cannot later (i.e., after the due date for filing) change to a joint return.

Regarding classification as a dependent, 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.

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 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. -Scholarship funds for room and board

Hunter (age 68) and his wife Jenelle (age 70) file a joint return. They furnish all of the support of Luther (Hunter's90-year old father), who lives with them. In 2018, they received $6,000 of interest income on city of Chicago bonds and interest and dividend income on corporate stocks and bonds of $50,000. Compute Hunter and Jenelle's taxable income for 2018.

Warren, age 17, is claimed as a dependent by his father. In 2018, Warren has dividend income of $1,500 and earns $400 from a part-time job. a. What is Warren's taxable income for 2018? b. Suppose Warren earned $1,200 (not $400) from the part-time job. What is Warren's taxable income for 2018?

A qualifying child cannot include:

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 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

During 2018, Lisa (age 66) furnished more than 50% of the support of the following persons: ? Lisa's current husband who has no income and is not claimed by someone else as a dependent. ? Lisa's stepson (age 19) who lives with her and earns $6,000 as a dance instructor. He dropped out of school a year ago. ? Lisa's ex-husband who does not live with her. The divorce occurred two years ago. ? Lisa's former brother-in-law who does not live with her. Presuming all other dependency tests are met, on a separate return how many dependents may Lisa claim?

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 37%. i. Applicable rate could be as low as 0%. j. Maximum rate is 28%. k. No correct match provided. -Additional standard deduction

Regarding classification as a dependent, 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 half-brother who lives with taxpayer.

Ellen, age 39 and single, furnishes more than 50% of the support of her parents, who do not live with her? their only source of income are Social Security benefits. Ellen practices as a self-employed interior decorator and has gross income in 2018 of $120,000. Helen has $30,000 of business deductions and $8,100 of itemized deductions. a. Can Ellen qualify for head of household filing status? Explain. b. What is Ellen's taxable income for 2018? c. What is Ellen's dependent tax credit (if any)?

In determining the filing requirement based on gross income received, both additional standard deductions (i.e., age and blindness) are taken into account.