ACC 372

Josh, who is 17 years old and single, is claimed as a dependent on his mom's tax return. During 2020, he received $2,500 interest (unearned income) on a savings account. He also earned $625 from a part-time job. When Josh files his own tax return, his standard deduction will be:

$1,100 [the greater of $1,100 or $975 (the sum of earned income of $625 plus $350)

James and Judy have one dependent child, John, who is 12. In 2020, John received $3,500 of interest income and has no earned income. John has net unearned income of:

$1,300 ($3,500 - $1,100 - $1,100 standard deduction).

Gabriel is single and had taxable income of $1,300,000 in 2020. His tax is:

$156,235.00 + [($1,300,000 - $518,400) × 37%] = $445,427.00.

Martin provides more than half the support of his uncle Mike who does not live with him. Mike's income for the year includes dividends of $1,100, earnings from walking the neighborhood dogs of $1,000, nontaxable Social Security benefits of $5,000, and nontaxable interest from municipal bonds in the amount of $6,000. What is Mike's gross income?

$2,100 ($1,100 dividends + $1,000 earnings from dog walking)

James and Judy have one dependent child, John, who is 12. In 2020, John received $3,500 of interest income and has no earned income. John's taxable income is

$2,400 ($3,500 - $1,100 standard deduction).

Teresa is an unmarried dependent child who works part-time at the neighborhood doggy day care as a pet-sitter and dog walker, earning $4,200 in 2020. Teresa also received $150 interest on her savings account. What is Teresa's earned income, and what is her gross income?

$4,200 earned income and $4,350 gross income

In 2020, Raphael spends $30,000 per year on food, clothing, and other personal expenditures. On December 31, 2020, he has assets of $150,000 (fair market value) and liabilities of $5,000. The imputed rental value of the home he owns and occupies is $15,000. What is his total consumption for 2020?

$45,000

During the year, Willow had the following transactions: Salary$70,000 Interest income on IBM bonds 2,000 Inheritance from uncle 40,000 Contribution to traditional IRA5,000 Capital losses3,000 Willow's AGI is:

$64,000.

Harvey purchased a corporate bond at its face amount of $20,000 on January 1, 2020. The bond pays 5% interest on each December 31. On April 30, 2020, Harvey sold the bond for $21,000. In 2020, Harvey must recognize a _____ capital gain from the sale of the bond.

$666.67 Amount received from sale$ 21,000.00 Less accrued interest income (333.33)(5% × $20,000 × 4/12) Selling price of bond less interest$ 20,666.67Less cost of the bond(20,000.00) Capital gain on sale$ 666.67

During 2020, Hayden had the following transactions: Salary$92,000 Accident insurance proceeds4,000 Inheritance from grandparent50,000 Contribution to traditional IRA6,000 Capital losses7,000

$92,000 (salary) - $6,000 (IRA contribution) - $7,000 (capital losses) = $79,000

During the year, Earl had the following transactions: Salary$90,000 Short-term capital gain from a stock investment4,000 Received repayment of $20,000 loan he made to his brother (includes no interest) State income taxes(5,000) Earl's AGI is:

$94,000.

Darren, who is single, is in the 12% tax bracket and his taxable income is $38,600. He had the following capital asset transactions during the year: Long-term gain from the sale of a stock investment$10,000Short-term gain from the sale of a stock investment2,000 Darren's tax consequences from these gains would be:

(0% × $10,000) + (12% × $2,000).

Visual Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($350 per year), or two years in advance ($680). In September 2020, the company collected the following amounts applicable to future services: October 2020-September 2022 services (two-year contracts)$ 72,000 October 2020-September 2021 services (one-year contracts) 64,000 Total$136,000 As a result of the above, Visual Cable should report as gross income:

.$111,000 in 2021. One-eighth (3/24) of the payments on the two-year contracts was earned (1/8 × $72,000 = $9,000) and one-fourth (1/4 × $64,000 = $16,000) of the payments on the one-year contracts was earned in 2020 and is included in 2020 gross income. The balance of the payments of $111,000 ($136,000 - $9,000 - $16,000) must be included in 2021 gross income.

Which of the following is not a way to lower a taxpayer's effective tax rate? a.Exclude income from the tax base. b.Make sure that the taxpayer's business is treated as a passive activity if it produces a loss. c.Invest in tax-free municipal bonds. d.Make sure expenses are deductible. e.Make sure losses are deductible.

.Make sure that the taxpayer's business is treated as a passive activity if it produces a loss.

Beginning in 2018, Congress suspended the deduction for exemptions through:

2025

The maximum tax rate of long-term gains on depreciable property used in a trade or business and held for more than one year is:

25%.

The maximum tax rate of short-term gains held for one year or less is:

37%

Annie, age 70 and single, is claimed as a dependent on her daughter's tax return. During 2020, she had interest income of $2,400 and $800 of earned income from babysitting. Annie's taxable income is:

Annie's taxable income is $400. $3,200 gross income - $1,150 [greater of $1,100 or $1,150 ($800 earned income + $350)] - $1,650 (additional standard deduction for age 65 and older) = $400.

The standard deduction is the sum of which of the following components?

Basic standard deduction and additional standard deduction

Which of the following is not considered an exclusion from gross income?

Bonus

A qualifying child must meet all of the following tests, except the: a.Exemption test. b.Support test. c.Age test. d.Residence test. e.Relationship test.

Exemption test.

During the year, Kevin has the following capital transactions: Long-term capital gain$ 6,000 Long-term collectible gain2,000 Short-term capital gain4,000 Short-term capital loss10,000 After the netting process, the result would be a:

First, the short-term capital gain and short-term capital loss are combined, resulting in a short-term capital loss of $6,000. Of this short-term capital loss, $2,000 is applied against the collectible gain of $2,000, and the $4,000 balance is applied against the long-term capital gain of $6,000. The result is a long-term capital gain of $2,000.

Michelle provides more than half the support of her son, Andrew, who does not live with her. Andrew is 26 and is a full-time student in graduate school. He earns $2,000 per year from his first part-time job and $500 from a second part-time job while receiving a scholarship of $10,000 to cover tuition. He also receives nontaxable interest from city bonds in the amount of $6,000. What is Andrew's gross income, and is he considered Michelle's dependent?

Gross income is $2,500, and he meets the dependency test.

Capital assets are defined in the Code as any property held by the taxpayer other than certain items including:

Inventory, accounts receivable, and depreciable property used in a business.

On January 5, 2020, Louise purchased a bond paying interest at 6% for $30,000. On September 30, 2020, she gave the bond to Gerard. The bond pays $1,800 interest on December 31. Louise and Gerard are cash basis taxpayers. When Gerard collects the interest in December 2020:

Louise reports $1,350 of interest income in 2020, and Gerard reports $450 of interest income in 2020.

In 2020, Ramon owns 120 shares of Duke Company common stock with a cost of $19,000 and a fair market value of $25,000. If Ramon sells the stock for $25,000 this year when he has a marginal tax rate of 15%, how much will he net in cash after he pays tax on the gain?

Ramon will net $24,100 in cash, or $25,000 - 15%($25,000 - $19,000) after paying tax on the gain.

A qualifying relative must meet which of the following tests?

Relationship, gross income, and support tests

Which of the following is not an important consideration of tax planning opportunities regarding dependents? a.The joint return test b.Community property ramifications c.The capital gain tax rate d.Support e.The due date for substituting separate returns for a joint return

The capital gain tax rate

Which of the following statements regarding reporting a child's unearned income on the parent's return is false? a.A parent may elect to report the child's unearned income that exceeds $2,200 on the parent's own tax return if the child meets three requirements. b.The child is not subject to backup withholding. c.The child's gross income must be from interest only. d.The child's gross income must be more than $1,100 but less than $11,000. e.No estimated tax has been paid in the name and Social Security number of the child.

The child's gross income must be from interest only

Janice, age 16 and single, is claimed as a dependent on her parent's tax return. During 2020, she had earned income of $900 from a summer job and had no unearned income. Her standard deduction is:

The greater of $1,100 or ($900 earned income + $350).

Steven and Trudy Madison are husband and wife and file a joint return for 2020. Both are under 65 years of age. They provide more than half of the support of their daughter, Jane (age 25), who is a full-time medical student. Jane receives a $5,000 scholarship covering her tuition at college. They furnish all the support of Isabel (Steven's grandmother), who is age 80 and lives in a nursing home. They also provide more than half the support for Maggie (age 66), who is a friend of the family and lives with them. How many dependents do the Madisons have?

Three (Jane, Isabel, and Maggie). Jane is not a qualifying child—although a full-time student, she is not under age 24. Jane does meet the qualifying relative category as the type of scholarship aid she receives is nontaxable (the gross income test is satisfied). Isabel is not a member of the household but satisfies the relationship test. Maggie does not satisfy the relationship test but is a member of the household.

Which of the following is not a deductible expense? a.Personal property taxes b.Charitable contributions c.Unreimbursed employee business expenses d.Real estate taxes e.Interest on student loans

Unreimbursed employee business expenses

Effective tax planning includes carefully considering all the following, except: a.Considering dependency status. b.Taking advantage of tax rate differentials. c.Considering the deductibility of expenditures. d.Maximizing the use of the standard deduction. e.Whether or not salaries will be considered gross income.

Whether or not salaries will be considered gross income.

Neal and Ella were divorced on January 23, 2020. Their only marital property was a personal residence with a value of $100,000 and cost of $40,000. Under the terms of the divorce agreement, Ella would receive the house and she would pay Neal $10,000 each year for five years, or until Neal's death, whichever should occur first. Neal and Ella lived apart when the payments were made to Neal. The divorce agreement did not contain the word alimony. Which of the following statements is true?

a.Neither Neil nor Ella must recognize income or gain, and neither can deduct for alimony payments.

Because no tax is due until a gain has been recognized, the law favors investments that yield:

b.Appreciation rather than annual income.

Which of the following is not considered gross income? a.Severance pay b.Salary c.Jury duty pay d.Inheritance e.Prize won on a game show

d.Inheritance

On October 1, 2020, Bradley, a cash basis taxpayer, gave Ralph common stock that paid a dividend of $1,000 on December 15, 2020. On November 15, 2020, the corporation declared the dividend payable to shareholders of record as of November 22, 2020. The corporation has paid the $1,000 dividend once each year for the past 10 years, during which Bradley owned the stock. When Ralph collects the dividend on December 15, 2020:

d.Ralph must include all the dividend in his gross income.

A child who has unearned income of $2,200 or less may still be subject to the kiddie tax.

false

Because tax income was modeled after accounting income, corporations typically report the same income for both tax and accounting purposes.

false

Currently, the top income tax rate in effect is the highest it has ever been.

false

The definition of a qualifying child applies to all of the following, except the: a.Head-of-household filing status. b.Credit for child and dependent care expenses. c.Income exclusion. d.Earned income tax credit. e.Child tax credit.

income exclusion

Candy is a cash basis attorney. In 2020, she performed services in connection with the formation of a corporation and received stock with a value of $3,000 for her services. By the end of the year, the value of the stock had decreased to $1,000. She continued to hold the stock. Candy must recognize $3,000 of gross income from the stock for 2020.

true

George's deductions from AGI are usually slightly below the standard deduction allowed for any given tax year. Therefore, he has always taken the standard deduction. Under these circumstances, George could reduce his tax liability by accelerating his usual charitable contribution to his church into the current tax year.

true

Many taxpayers who can't itemize deductions may start claiming itemized deductions when they purchase a home.

true

Shifting income from higher- to lower-bracket family members is an effective means of minimizing a family's tax liability.

true

The primary purpose of the imputed interest rules is to prevent income shifting via interest-free loans.

true

A married individual can be claimed as a dependent on his or her parents' tax return.

true This is allowed as long as the individual does not file a joint return with his or her spouse.

Most individual taxpayers use the cash receipts and disbursements method of accounting.

true Most individuals and many small businesses use the cash receipts and disbursements method of accounting, while large corporations use the accrual method.

Ad valorem taxes are taxes based on:

value