405 Exam 1 - Questions 4

Which of the following choices are filing statuses that may be used by a taxpayer? (Choose all that apply) a. Single parent b. Married filing jointly c. Single d. Divorced e. Married filing individually f. Head of household

B, C, F

Individuals who qualify as dependents of another TP may NOT claim a(n) ____________ on their own tax return.

Personal exemption

In 2014, Ryan files as head of household and has taxable income of $75,672. None of his taxable income consists of capital gains or qualified dividends. Using the tax table for 2014, his tax liability totals $_____.

$13,331

In 2015, Ryan files as head of household and has taxable income of $123,212. None of his taxable income consists of capital gains or qualified dividends. Using the tax rate schedule, his tax liability totals $_____.

$25,125.50

David and Lilly Fernandez have determined their tax liability on their joint tax return to be $1,740. They have made prepayments of $1,100 and also have a child tax credit of $1,000. What is the amount of their tax refund or taxes due?

$360 (2,100 - 1,740 = 360)

Andrew is trying to determine if Annie will qualify as his dependent. She will NOT meet the criteria for a qualifying child, so Andrew is checking to see if she is a qualifying relative. Assuming there is NOT a multiple support agreement involved, which one of the following criteria for the support test must be met in order for Annie to be considered a qualifying relative for Andrew? a. Andrew must provide over half of her support for the year b. Annie must live with Andrew for over half of year in order to meet support test c. Annie must be related to Andrew in order to meet the support test d. Annie must NOT provide over half of her own support, but it doesn't matter who is providing the support

A

Chasity is 20, has a full-time job, and supports herself. Her brother, William, age 22, has decided to go back to college. He moved in with Chasity and is attending college full-time. Which of the following statements is accurate regarding the age test for a qualifying child and how it applies to William? a. He does NOT meet age test because he is older than Chasity b. He meets the age test because he is full-time student under age 24 c. He does NOT meet age test because he is not under age of 19 d. He doest NOT meet the age test because he is not Chasity's child

A

Corey is 25 and has a full-time job. His younger brother, James, is 20 and was enrolled as a full-time student at the community college during the fall semester. James lives with Corey. Which of the following statements is correct with respect to the age requirement for a qualifying child? a. James meets the age test because he is younger than Corey, and he is under age 24 and a full-time student b. James does NOT meet the age test because he is not under 19 c. James must be older than Corey in order to meet the age test d. James does NOT meet the age test because he was not enrolled as a full-time student for the entire year

A

Melina's daughter, Linda, is considered permanently and totally disabled. Linda is 30 years old and still ives with Melina. Which of the following statements is accurate regarding age test for a qualifying child as it applies to Linda? a. Linda is deemed to meet age test because she is permanently and totally disabled b. Linda does NOT meet the age test because she is not a full-time student c. Linda does NOT meet the age test because she is not under the age of 19

A

Which of the following statements are correct concerning the married filing separately filing status? (Choose all that apply) a. The MFS status may be useful when one spouse does NOT want to be in contact with the other spouse b. Tax-related items for MFS taxpayers are half the amounts for married filling jointly TP c. MFS status is only status that may be used when a spouse dies during tax year d. MFS TP can capitalize on deductions when one spouse itemizes deductions, while the other spouse uses the standard deduction

A, B

Which of the following expenses are classified as itemized deductions for tax purposes? (Choose all that apply) a. Certain job expenses b. Charitable contributions c. Mortgage interest expense d. Property insurance e. Higher education expenses for bachelor's degree

A, B, C

Which of the following individuals would meet the relationship test for being a qualifying child of the TP? (Choose all that apply) a. Child b. Brother (younger than TP) c. Cousin (younger than TP) d. Grandchild e. Father f. Niece (younger than TP)

A, B, D, F

How does a taxpayer determine which filing status to use? (Choose all that apply) a. May depend on whether or not the TP has dependents b. Depends on amount of taxable income the TP has for the year c. Depends on whether or not the TP is married at end of year d. Depends on age of TP

A, C

Under a multiple support agreement, TP who DON'T pay over half of an individual's support may still be allowed to claim an exemption if which of the following rules apply? a. No one TP paid over one-half of the individual's support b. The TP contributed over 5% of the individual's support for the year c. All other individuals contributing more than 10% support provides statement to TP agreeing NOT to claim individual as dependent d. Individual earns more than the exemption amount, but NOT enough to provide half of his support e. The TP and at least one other person provided over one-half of the support of the individual

A, C, E

Which of the following individuals would meet the relationship test for being a qualifying relative of the TP if she/he has only lived with the TP for eight months of the year? (Choose all that apply) a. Grandchild b. Cousin c. Father d. Friend e. Niece f. Brother

A, C, E, F

When can the married filing jointly or married filing separately filing status be used? (Check all that apply) a. When one spouse died during year and surviving spouse has not remarried b. When TP's are unmarried, but have lived together for entire year c. When TP's have been married for any part of the tax year d. When TP's are unmarried, but have a dependent child living with them e. When TP's are married as of the last day of the year

A, E

A taxpayer who is married at the end of they year, but lived apart from the other spouse for the last six months of the year, may qualify as a(n) ___________ and be able to use the head of household filing status.

Abandoned spouse

In addition to the individual income tax, individuals may be required to pay other taxes. TP with a large amount of tax preference items and itemized deductions may be subject to the __________ tax. Owners of unincorporated businesses may have to pay __________ tax.

Alternative minimum, self-employment

Hillary, Craig, and David provide 60% of the support for their elderly aunt, Brooke. Hillary provides 8%, while Craig provides 40% and David provides 12%. Which of the TP are eligible to claim a dependency exemption for Brooke? a. No one b. Craig and David c. Only Craig d. Hillary, Craig, and David

B

Which of the following statements is INCORRECT when comparing the rules for determining who qualifies as a dependent as a qualifying child and who qualifies as a dependent as a qualifying relative? a. QC are subject to age restrictions while QR are not b. Relationship requirements is more broadly defined for QC than for QR c. TP need NOT provide more than half a QC support, but they must provide more than half the support of a QR d. QR are subject to gross income restriction while QC are not

B

In order for an individual to be a quailing relative, rather than a qualifying child, which of the following criteria must be met? (Choose all that apply) a. TP doesn't have to provide over half of the individual's support, but the individual cannot provide over half of his/her own support b. TP must provide over half of the individual's support c. Individual must meet a gross income test d. Individual must meet a residence test e. Individual must meet an age test

B, C

Which of the following criteria is necessary to qualify as a dependent of another TP? (Choose all that apply) a. Must NOT be required to file a tax return on his own b. Must be a citizen of the US or resident of the US, Canada, or Mexico c. Must be considered either a qualifying child or a qualifying relative d. Must be considered both a qualifying child and qualifying relative e. Must NOT file a joint return unless there is no tax liability on the couple's return and no tax liability on either return if they filed separatelet

B, C, E

Which of the following choices describe tax deductions? (Choose all that apply) a. They reduce an individual's tax liability dollar for dollar b. They're a matter of legislative grace c. Like income, they follow the all-inclusive concept d. TP are NOT allowed to deduct anything unless a specific tax provision allows them to do so

B, D

Which of the following individuals meet requirements to be qualifying children for Tonya? (Choose all that apply) a. Ron (age 20) provides over half of his own support. He is full-time college student, earned $12,000 this year, and lives with his mother, Tonya. b. Vinne (age 17) does not provide half of his own support. He is in high school, earned $5,000 this year, and lives with his mother, Tonya. c. Pam (age 19) receives 70% of her support from her cousin, Tonya. Pam is a full-time student, earned $7,000 and lived with Tonya 7 months this year. d. Sandy (age 23) does not provide half of her own support. She is full-time college student, earned $7,000 this year, and lives with her aunt, Tonya.

B, D

Which of the following are true regarding the qualifying widow or widower filing status? (Check all that apply) a. Surviving spouse can NOT use status if he or she has dependents b. Status may be used for up to two years after the year the other spouse died c. Status is used in the year that one spouse died d. Surviving spouse must have dependents e. Surviving spouse must NOT have remarried during year

B, D, E

Which of the following individuals would meet the relationship test for being a qualifying child of the TP? (Choose all that apply) a. Cousin (younger than TP) b. Stepson c. Grandmother d. Aunt e. Nephew (younger than TP) f. Half-sister (younger than TP)

B, E, F

A taxpayer may file as single when: a. She is separated form her husband, but not yet divorced b. Her spouse died during the year c. She is unmarried at the end of the tax year d. She has been unmarried for over half the year

C

When a divorced TP pays over half the cost of maintaining a home where she and a dependent child lived for over half the year, she qualifies for which filing status? a. Qualifying widower b. Single c. Head of household d. Married filing separately

C

When is it possible for a qualifying person for determining head of household status to NOT live with the taxpayer? a. If the person is the child of the TP, but lives with the other parent b. If the person is the married child of a TP c. If the person is the parent of the TP

C

Which filing status is allowed the lowest standard deduction amount? a. Qualifying widow or widower b. Head of household c. Single d. Married filing jointly

C

Which of the following examples results in realized income? a. TP transferred $1,000 from her checking account to savings account b. TP held stock that appreciated in value during year c. TP sold stock for $1,000. She had originally paid $300 for stock d. TP borrowed $1,000 from the bank

C

Which of the following statements is TRUE regarding the individual income tax formula? a. TP may deduct greater of his standard deduction or his itemized deduction for AGI to arrive at AGI b. TP may deduct greater of his standard deduction or his personal exemption from AGI to arrive at taxable income c. TP may deduct greater of his standard deduction or his itemized deductions from AGI to arrive at taxable income d. TP may deduct greater of his standard deduction or his personal exemption for AGI to arrive at adjusted gross income

C

Which of the following would most likely NOT qualify as support for meeting the support test? a. Wedding dress b. Medical/dental care c. Riding lawnmower used by a child to mow the family yard d. Summer camp with horseback riding, swimming, and other activities

C

Which one of the following individuals CANNOT meet the residence test for being a qualifying child of another TP? a. Justin attends college in a different state than where his parents live b. Steven graduated from college in May and moved back in with his parents for two months. He moved out on July 15 c. Amy lived with her parents until end of April. She moved into an apartment on May 1 d. Cathy was injured in a car accident in February. She remained in the hospital until September

C

Rank the filing statuses according to which is the most favorable for taxpayers. a. Head of household b. Single c. Married filing jointly

C, A, B

Which of the following assets are classified as capital assets? (Choose all that apply) a. Supplies used in a business b. Inventory held for sale in a business c. A house owned and used by a taxpayer d. Stock held for investment

C, D

Which of the following requirements are necessary to qualify for head of household status? (Choose all that apply) a. Have lived with qualifying person in TP's home for entire year b. Be a qualifying widow or widower c. Be unmarried (or considered unmarried under abandoned spouse provisions) at the end of the year d. Pay more than half the costs of keeping up a home for the year

C, D

Ashley and Roland were married and had two dependent children. Roland died last year. What filing status will Ashley use for the year Roland died and for the current year (assuming she does not remarry)? a. Must use married filing separately in prior year and head of household in current year b. Will use qualifying widower for both years c. Will use qualifying widower in prior year and head of household in current year d. Will use married filing jointly in prior year and qualifying widow in current year

D

In order to meet the requirements of the residence test for a qualifying child, the individual must live with the taxpayer for: a. Entire year b. Longer than he has resided with anyone else during year c. At least one-third of year d. More than half year

D

Which of the following tests states that the qualifying child must NOT have provided more than half his or her own living expenses for the year? a. Residence b. Gross income c. Relationship d. Support

D

Which one of the following choices is the definition of realized income? a. Income that must be reported on the current year's tax return b. Income that is subject to federal income tax c. Income consisting of cash receipts only - not catering or credit transactions d. Income from transaction with a second party where there is a measurable change in property rights between parties

D

A tax __________ reduces taxable income and a tax ___________ reduces the tax liability dollar for dollar.

Deduction, credit

Realized income items that taxpayers permanently omit from income are referred to as __________, while items that are taxed in a subsequent year are called __________.

Exclusions, deferrals

T or F: A TP may deduct both his standard deduction and his itemized deductions from AGI in order to calculate taxable income.

False

T or F: An individual will qualify as a qualifying child if he satisfies at least one of the following tests: age, support, relationship, and residence.

False - all of them

A TP's __________ depends on his or her marital status at the end of the year and whether the TP has dependents. Among other things, this classification determines the rate schedule and standard deduction amounts that the TP will use in filing a tax return.

Filing status

Expenses such as alimony paid, moving expenses, contributions to qualified retirement accounts, and business expenses for self-employed persons are deductions ___________ AGI.

For

Deductions ___________ (for/from) AGI cause a reduction in AGI, which increases the deductibility of ___________ (for/from) AGI deductions subject to AGI limitations.

For, from

The all-inclusive concept means that __________ generally includes all realized income from whatever source derived.

Gross income

The gross income test requires that a qualifying relative's gross income for the year be ___________ than the personal exemption amount.

Less

A __________-term capital gain is taxed at favorable rates compared to ordinary income, while a __________-term capital gain is taxed at ordinary income rates.

Long, short

If an individual could be a qualifying child for either her parent or her grandparent, the ___________ (parent/grandparent) is entitled to the dependency exemption.

Parent

The category of exemption deductions allowed for the TP and the TP's spouse are referred to as __________ exemptions. The deductions the TP is allowed to take for other persons he is supporting are called __________ exemptions.

Personal, dependency

A tax __________ includes income taxes withheld from a TP's salary by an employer, estimated tax payments paid directly to IRS, and amounts from a prior year overpayment that were applied to the current year's tax liability.

Prepayment

Sheila and Joe Wells are married with two dependent children. During 2015, they have gross income of $159,800, deductions for AGI of $5,500, itemized deductions of $10,000 and tax credits of $2,000. The Wells' had $22,000 withheld by their employer for federal income tax. They have a ___________ (due/refund) of $______.

Refund, $987.50 159,800 - 5,500 - 12,600 - 16,000 =125,700 taxable income Taxes - 22,000 - 2,000 = $(987.50)

The three tests that must be met to qualify as a qualifying relative are: __________, __________, and __________.

Relationship, support, and gross income

Camille Sikorski was divorced last year. She currently owns and provides a home for her 15-year-old daughter, Kaly, and 18-year-old son, Parker. Both children lived in Camille's home for the entire year, and Camille paid for all the costs of maintaining the home. She received a salary of $55,000 and contributed $4,200 of it to a qualified retirement account (a for AGI deduction). She also received $6,000 of alimony from her former husband. Finally, Camille paid $2,700 of expenditures that qualified as itemized deductions. a. What is Camille's taxable income? b. What would Camille's taxable income be if she incurred $9,800 of itemized deductions instead of $2,700? c. Assume the original facts except that Camille's daughter, Kaly, is 25 years old and a full-time student. Kaly's gross income for the year was $5,300. Kaly provided $3,180 of her own support, and Camille provided $5,300 of support. What is Camille's taxable income?

a. $35,550 (61,000 - 4,200 - 9,250 - 12,000 = 35,550 taxable income) b. $35,000 (61,000 - 4,200 - 9,700 - 12,000 = 35,000) c. $39,550 (61,000 - 4,200 - 9,250 - 8,000 = 39,550)

Jasper and Crewella Dahvill were married in year 0. They filed joint tax returns in years 1 and 2. In year 3, their relationship was strained and Jasper insisted on filing a separate tax return. In year 4, the couple divorced. Both Jasper and Crewella filed single tax returns in year 4. In year 5, the IRS audited the couple's joint year 2 tax return and each spouse's separate year 3 tax returns. The IRS determined that the year 2 joint return and Crewella's separate year 3 tax return understated Crewella's self-employment income causing the joint return year 2 tax liability to be understated by $5,800 and Crewella's year 3 separate return tax liability to be understated by $8,450. The IRS also assessed penalties and interest on both of these tax returns. Try as it might, the IRS has not been able to locate Crewella, but they have been able to find Jasper. a. What amount of tax can the IRS require Jasper to pay for the Dahvill's year 2 joint return? b. What amount of tax can the IRS require Jasper to pay for Crewella's year 3 separate tax return?

a. $5,800 b. $0

Jeremy earned $60,000 in salary and $9,000 in interest income during the year. Jeremy has two qualifying dependent children who live with him. He qualifies to file as head of household and has $10,500 in itemized deductions. Neither of his dependents qualifies for the child tax credit. a. Use the 2015 tax rate schedules to determine Jeremy's taxes due. b. Assume that in addition to the original facts, Jeremy has a long-term capital gain of $2,500. What is Jeremy's tax liability including the tax on the capital gain? c. Assume the original facts except that Jeremy had only $7,500 in itemized deductions. What is Jeremy's total income tax liability?

a. $6,317.50 69,000 - 10,500 - 12,000 = 46,500 taxable income b. $6,692.50 71,500 - 10,500 - 12,000 = 49,000 taxable income c. $6,505.00 69,000 - 9,250 - 12,000 = 47,750 taxable income

Match the type of character of income to its definition. i. Tax-exempt ii. Tax-deferred iii. Ordinary iv. Capital a. Gains (or losses) on investment or personal use assets that may be taxed at favorable rates b. Income realized during year that is not included in GI until later year c. Income included in GI in current year and taxed at ordinary rates per tax rate schedules d. Income realized during year that is excluded from GI and never taxed

a. iv b. ii c. iii d. i