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

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Question 51

True/False

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Since an abandoned spouse is treated as not married and has one or more dependent children, he or she qualifies for the standard deduction available to head of household.

A) True
B) False

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Question 52

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Which of the following characteristics correctly describes the procedure for the phaseout of exemptions?

A) The threshold amounts are different and depend on filing status (e.g., joint return, single) .
B) The threshold amounts are indexed for inflation each year.
C) The phaseout procedure is known as a "stealth tax."
D) For the phaseout procedure to be applied, a taxpayer's AGI must exceed the threshold amount.
E) All of these.

F) A) and B)
G) A) and E)

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Question 53

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Debby, age 18, is claimed as a dependent by her mother. During 2017, she earned $1,100 in interest income on a savings account. Debby's standard deduction is $1,450 ($1,100 + $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. -Marginal income tax rate

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.

A taxpayer who itemizes must use Form 1040, and cannot use Form 1040EZ or Form 1040A.

Katelyn is divorced and maintains a household in which she and her daughter, Crissa, live. Crissa, age 22, earns $11,000 during 2017 as a model. Katelyn does not qualify for head of household filing status.

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. -Basic standard deduction

Emily, whose husband died in December 2016, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2017? (Note: Emily is the executor of her husband's estate.)

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?

Buddy and Hazel are ages 72 and 71 and file a joint return. If they have itemized deductions of $14,600 for 2017, they should not claim the standard deduction.

Many taxpayers who previously itemized will start claiming the standard deduction when they purchase a home.

Roy and Linda were divorced in 2016. The divorce decree awards custody of their children to Linda but is silent as to who is entitled to claim them as dependents. If Roy furnished more than half of their support, he can claim them as dependents in 2017.

Monique is a resident of the U.S. and a citizen of France. If she files a U.S. income tax return, Monique cannot claim the standard deduction.

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.

Lucas, age 17 and single, earns $6,000 during 2017. Lucas's parents cannot claim him as a dependent if he does not live with them.

In satisfying the support test and the gross income test for claiming a dependency exemption, a scholarship received by the person being claimed is handled the same way for each test. Do you agree or disagree with this statement? Why?

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 daughter-in-law who lives with taxpayer.

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:

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