Income Tax Chapter 3
5. An "above the line" deduction refers to a deduction for AGI. a. True b. False
A
10. The filing status of a taxpayer (e.g., single, head of household) must be identified before the applicable standard deduction is determined. a. True b. False
A
13. The basic and additional standard deductions both are subject to an annual adjustment for inflation. a. True b. False
A
15. Once they reach age 65, many taxpayers will switch from itemizing their deductions from AGI and start claiming the standard deduction. a. True b. False
A
17. As opposed to itemizing deductions from AGI, the majority of individual taxpayers choose the standard deduction. a. True b. False
A
18. Howard, age 82, dies on January 2, 2014. On Howard's final income tax return, the full amount of the basic and additional standard deductions will be allowed even though Howard lived for only 2 days during the year. a. True b. False
A
2. Under the Federal income tax formula for individuals, the determination of adjusted gross income (AGI) precedes that of taxable income (TI). a. True b. False
A
20. Jason and Peg are married and file a joint return. Both are over 65 years of age and Jason is blind. Their standard deduction for 2014 is $16,000 ($12,400 + $1,200 + $1,200 + $1,200). a. True b. False
A
21. Derek, age 46, is a surviving spouse. If he has itemized deductions of $12,700 for 2014, Derek should not claim the standard deduction. a. True b. False
A
25. Dan and Donna are husband and wife and file separate returns for the year. If Dan itemizes his deductions from AGI, Donna cannot claim the standard deduction. a. True b. False
A
28. Katrina, age 16, is claimed as a dependent by her parents. During 2014, she earned $5,600 as a checker at a grocery store. Her standard deduction is $5,950 ($5,600 earned income + $350). a. True b. False
A
29. A dependent cannot claim a personal exemption on his or her own return. a. True b. False
A
32. For the year a spouse dies, the surviving spouse is considered married for the entire year for income tax purposes. a. True b. False
A
33. In determining whether the gross income test is met for dependency exemption purposes, only the taxable portion of a scholarship is considered. a. True b. False
A
37. In 2014, Hal furnishes more than half of the support of his ex-wife and her father, both of whom live with him. The divorce occurred in 2013. Hal may claim the father-in-law and the ex-wife as dependents. a. True b. False
A
38. After her divorce, Hope continues to support her exhusband's sister, Cindy, who does not live with her. Hope can claim Cindy as a dependent. a. True b. False
A
39. Darren, age 20 and not disabled, earns $4,000 during 2014. Darren's parents cannot claim him as a dependent unless he is a full-time student. a. True b. False
A
4. After Ellie moves out of the apartment she had rented as her personal residence, she recovers her damage deposit of $1,000. The $1,000 is not income to Ellie. a. True b. False
A
40. Lucas, age 17 and single, earns $6,000 during 2014. Lucas's parents cannot claim him as a dependent if he does not live with them. a. True b. False
A
42. Kim, a resident of Oregon, supports his parents who are residents of Canada but citizens of Korea. Kim can claim his parents as dependents. a. True b. False
A
44. For dependents who have income, special filing requirements apply. a. True b. False
A
45. A taxpayer who itemizes must use Form 1040, and cannot use Form 1040EZ or Form 1040A. a. True b. False
A
47. Married taxpayers who file a joint return cannot later (i.e., after the filing due date) switch to separate returns for that year. a. True b. False
A
50. In January 2014, Jake's wife dies and he does not remarry. For tax year 2014, Jake may not be able to use the filing status available to married persons filing joint returns. a. True b. False
A
52. Katelyn is divorced and maintains a household in which she and her daughter, Crissa, live. Crissa, age 22, earns $11,000 during 2014 as a model. Katelyn does not qualify for head of household filing status. a. True b. False
A
53. Ed is divorced and maintains a home in which he and a dependent friend live. Ed does not qualify for head of household filing status. a. True b. False
A
55. 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
A
56. Currently, the top income tax rate in effect is not the highest it has ever been. a. True b. False
A
58. The kiddie tax does not apply to a child whose earned income is more than one-half of his or her support. a. True b. False
A
62. A child who has unearned income of $2,000 or less cannot be subject to the kiddie tax. a. True b. False
A
64. In 2014, Frank sold his personal use automobile for a loss of $9,000. He also sold a personal coin collection for a gain of $10,000. As a result of these sales, $10,000 is subject to income tax. a. True b. False
A
66. For 2014, 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. a. True b. False
A
67. In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct? a. In arriving at taxable income, a taxpayer must choose between the standard deduction and deductions from AGI. b. In arriving at AGI, personal and dependency exemptions must be subtracted from gross income. c. In arriving at taxable income, a taxpayer must choose between the standard deduction and claiming personal and dependency exemptions. d. The formula does not apply if a taxpayer elects to claim the standard deduction. e. None of the above
A
7. A decrease in a taxpayer's AGI could increase the amount of medical expenses that can be deducted. a. True b. False
A
71. Which, if any, of the following is a deduction for AGI? a. Contributions to a traditional Individual Retirement Account. b. Child support payments. c. Funeral expenses. d. Loss on the sale of a personal residence. e. Medical expenses.
A
73. Which, if any, of the statements regarding the standard deduction is correct? a. Some taxpayers may qualify for two types of standard deductions. b. Not available to taxpayers who choose to deduct their personal and dependency exemptions. c. May be taken as a for AGI deduction. d. The basic standard deduction is indexed for inflation but the additional standard deduction is not. e. None of the above.
A
89. Millie, age 80, is supported during the current year as follows: Percent of Support Weston (a son) 20% Faith (a daughter) 35% Jake (a cousin) 25% Brayden (unrelated close family friend) 20% During the year, Millie lives in an assisted living facility. Under a multiple support agreement, indicate which parties can qualify to claim Millie as a dependent. a. Weston and Faith. b. Faith. c. Weston, Faith, Jake, and Brayden. d. Faith, Jake, and Brayden. e. None of the above
A
93. Kyle, whose wife died in December 2011, filed a joint tax return for 2011. He did not remarry, but has continued to maintain his home in which his two dependent children live. What is Kyle's filing status as to 2014? a. Head of household. b. Surviving spouse. c. Single. d. Married filing separately. e. None of the above.
A
98. Regarding the Tax Tables applicable to the Federal income tax, which of the following statements is correct? a. For any one year, the Tax Tables are issued by the IRS after the Tax Rate Schedules. b. The Tax Tables will always yield the same amount of tax as the Tax Rate Schedules. c. Taxpayers can elect as to whether the use the Tax Tables or the Tax Rate Schedules. d. The Tax Tables can be used by an estate but not by a trust. e. No correct answer given.
A
81. Merle is a widow, age 80 and blind, who is claimed as a dependent by her son. During 2014, she received $4,800 in Social Security benefits, $2,500 in bank interest, and $1,800 in cash dividends from stocks. Merle's taxable income is: a. $4,300 - $1,000 - $3,100 = $200. b. $4,300 - $3,100 = $1,200. c. $4,300 - $1,000 - $1,550 = $1,750. d. $9,100 - $1,000 - $3,100 = $5,000. e. None of the above
A : Although Merle has no earned income, she is entitled to a minimum regular standard deduction of $1,000. She also is allowed additional standard deductions for age and blindness of $3,100 ($1,550 + $1,550). At this level of income, the Social Security benefits are a nontaxable exclusion.
30. When separate income tax returns are filed by married taxpayers, one spouse cannot claim the other spouse as an exemption. a. True b. False
B An exemption is allowed if the spouse has no gross income and is not claimed as a dependent by another.
8. An increase in a taxpayer's AGI could decrease the amount of charitable contribution that can be claimed. a. True b. False
B An increase in AGI increases the allowable charitable contribution that can be claimed due to the 50% ceiling imposed.
34. 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
B Capital expenditures can be considered in determining support. It is assumed that the TV is largely for the mother's use.
27. Debby, age 18, is claimed as a dependent by her mother. During 2014, she earned $1,100 in interest income on a savings account. Debby's standard deduction is $1,450 ($1,100 + $350). a. True b. False
B Debby's standard deduction is the minimum allowed of $1,000.
24. 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. a. True b. False
B Either U.S. citizenship or residency will suffice in order to claim the standard deduction. Monique is not a nonresident alien.
1. Under the Federal income tax formula for individuals, a choice must be made between claiming deductions for AGI and itemized deductions. a. True b. False
B Even though a taxpayer chooses to itemize, deductions for AGI can be claimed.
12. The additional standard deduction for age and blindness is greater for married taxpayers than for single taxpayers. a. True b. False
B For 2014, compare $1,550 (single) with $1,200 (married).
26. Benjamin, age 16, is claimed as a dependent by his parents. During 2014, he earned $700 at a car wash. Benjamin's standard deduction is $1,350 ($1,000 + $350). a. True b. False
B His standard deduction is the greater of $1,000 or $1,050 ($700 + $350).
36. Roy and Linda were divorced in 2013. 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 2014. a. True b. False
B Not unless Linda consents.
41. Sarah furnishes more than 50% of the support of her son and daughter-in-law who live with her. If the son and daughter-in-law file a joint return, Sarah cannot claim them as dependents. a. True b. False
B If certain conditions are satisfied (e.g., they did not have to file but did so to obtain a refund), the son and daughterinlaw can qualify as Sarah's dependents.
63. A child who is married cannot be subject to the kiddie tax. a. True b. False
B If he or she does not file a joint return, such child is not exempt from the kiddie tax
65. Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%. a. True b. False
B If the regular income tax rates are lower, such rates apply.
104. For the current year, David has salary income of $80,000 and the following property transactions: Stock investment sales— Long-term capital gain $ 9,000 Short-term capital loss (12,000) Loss on sale of camper (purchased 4 years ago and used for family vacations) (2,000) What is David's AGI for the current year? a. $76,000. b. $77,000. c. $78,000. d. $89,000. e. None of the above.
B
14. Many taxpayers who previously itemized will start claiming the standard deduction when they purchase a home. a. True b. False
B Just the opposite is the case. The deduction for property taxes and mortgage interest expense usually makes itemizing preferable to the standard deduction
57. In terms of timing as to any one year, the Tax Tables are available before the Tax Rate Schedules. a. True b. False
B Just the reverse is the case.
102. Perry is in the 33% tax bracket. During 2014, he had the following capital asset transactions: Gain from the sale of a stamp collection (held for 10 years) $30,000 Gain from the sale of an investment in land (held for 4 years) 10,000 Gain from the sale of stock investment (held for 8 months) 4,000 Perry's tax consequences from these gains are as follows: a. (15% × $30,000) + (33% × $4,000). b. (15% × $10,000) + (28% × $30,000) + (33% × $4,000). c. (0% × $10,000) + (28% × $30,000) + (33% × $4,000). d. (15% × $40,000) + (33% × $4,000). e. None of the above.
B
70. Which of the following items, if any, is deductible? a. Parking expenses incurred in connection with jury duty—taxpayer is a dentist. b. Substantiated gambling losses (not in excess of gambling winnings) from state lottery. c. Contributions to mayor's reelection campaign. d. Speeding ticket incurred while on business. e. Premiums paid on personal life insurance policy
B
74. Which, if any, of the following statements relating to the standard deduction is correct? a. If a taxpayer dies during the year, his (or her) standard deduction must be prorated. b. If a taxpayer is claimed as a dependent of another, his (or her) additional standard deduction is allowed in full (i.e., no adjustment is necessary). c. If spouses file separate returns, both spouses must claim the standard deduction (rather than itemize their deductions from AGI). d. If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed. e. None of the above.
B
84. Evan and Eileen Carter are husband and wife and file a joint return for 2014. Both are under 65 years of age. They provide more than half of the support of their daughter, Pamela (age 25), who is a full-time medical student. Pamela receives a $5,000 scholarship covering her tuition at college. They furnish all of the support of Belinda (Evan's grandmother), who is age 80 and lives in a nursing home. They also support Peggy (age 66), who is a friend of the family and lives with them. How many dependency exemptions may the Carters claim? a. Two. b. Three. c. Four. d. Five. e. None of the above
B
86. During 2014, 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 exhusband who does not live with her. The divorce occurred two years ago. · Lisa's former brotherinlaw who does not live with her. Presuming all other dependency tests are met, on a separate return how many personal and dependency exemptions may Lisa claim? a. Two. b. Three. c. Four. d. Five. e. None of the above
B
9. All exclusions from gross income are reported on Form 1040. a. True b. False
B
99. In which, if any, of the following situations will the kiddie tax not apply? a. The child is married but does not file a joint return. b. The child has unearned income of $2,000 or less. c. The child has unearned income that exceeds more than half of his (or her) support. d. The child is under age 24 and a full-time student. e. None of the above
B
23. Clara, age 68, claims head of household filing status. If she has itemized deductions of $10,250 for 2014, she should not claim the standard deduction. a. True b. False
B The standard deduction yields $10,650 ($9,100 + $1,550).
75. During 2014, Marvin had the following transactions: Salary $50,000 Bank loan (proceeds used to buy personal auto) 10,000 Alimony paid 12,000 Child support paid 6,000 Gift from aunt 20,000 Marvin's AGI is: a. $32,000. b. $38,000. c. $44,000. d. $56,000. e. $64,000.
B : $50,000 (salary) - $12,000 (alimony) = $38,000. The gift is an exclusion while the child support is nondeductible. Amounts borrowed are not income
48. Married taxpayers who file separately cannot later (i.e., after the due date for filing) change to a joint return. a. True b. False
B : Such a change is allowed.
60. When the kiddie tax applies and the parents are divorced, the applicable parent (for determining the parental tax) is the one with the greater taxable income. a. True b. False
B : The applicable parent is the one who has custody
54. In terms of income tax consequences, abandoned spouses are treated the same way as married persons filing separate returns. a. True b. False
B An abandoned spouse is treated as a single taxpayer. Consequently, an abandoned spouse qualifies for head of household filing status
51. For tax purposes, married persons filing separate returns are treated the same as single taxpayers. a. True b. False
B Single taxpayers can enjoy many tax benefits that are unavailable to married persons filing separately—e.g., earned income credit, credit for child and dependent care expenses, deduction for interest paid on student loans.
49. Surviving spouse filing status begins in the year in which the deceased spouse died. a. True b. False
B Surviving spouse filing status begins in the year following the year of death.
43. In determining the filing requirement based on gross income received, both additional standard deductions (i.e., age and blindness) are taken into account. a. True b. False
B The additional standard deduction for blindness is not taken into account.
61. 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. a. True b. False
B The child need not file only if the parental election (if available) is made and the parent picks up all of the child's income
3. Under the income tax formula, a taxpayer must choose between deductions for AGI and the standard deduction. a. True b. False
B The choice is between deductions from AGI and the standard deduction.
16. Claude's deductions from AGI exceed the standard deduction allowed for 2014. Under these circumstances, Claude cannot claim the standard deduction. a. True b. False
B The choice is elective. Claude may wish to avoid the time and trouble of completing Schedule A.
59. Once a child reaches age 19, the kiddie tax no longer applies. a. True b. False
B The kiddie tax does apply if the child is a full-time student under age 24.
35. Using borrowed funds from a mortgage on her home, Leah provides 52% of her own support, while her sons furnished the rest. Leah can be claimed as a dependent under a multiple support agreement. a. True b. False
B The sons do not provide more than half of their mother's support. In this situation, the mother is selfsupporting
22. Buddy and Hazel are ages 72 and 71 and file a joint return. If they have itemized deductions of $14,600 for 2014, they should not claim the standard deduction. a. True b. False
B The standard deduction provides $14,800 ($12,400 + $1,200 + $1,200).
19. In 2014, Ed is 66 and single. If he has itemized deductions of $7,400, he should not claim the standard deduction alternative. a. True b. False
B The standard deduction yields $7,750 ($6,200 + $1,550).
31. Butch and Minerva are divorced in December of 2014. Since they were married for more than one-half of the year, they are considered as married for 2014. a. True b. False
B They must be married at the end of the year (unless one spouse dies) in order to be considered married.
11. Lee, a citizen of Korea, is a resident of the U.S. Any rent income Lee receives from land he owns in Korea is not subject to the U.S. income tax. a. True b. False
B Under the global system of taxation followed by the U.S., foreign-sourced income is subject to tax. Although Lee is not a citizen, he is a resident of the U.S.
6. Because they appear on page 1 of Form 1040, itemized deductions are also referred to as "page 1 deductions." a. True b. False
B What is described are deductions for AGI. Itemized deductions are also known as deductions from AGI and appear on page 2 of Form 1040.
46. An individual taxpayer uses a fiscal year March 1February 28. The due date of this taxpayer's Federal income tax return is May 15 of each tax year. a. True b. False
B he tax return is due on or before the fifteenth day of the fourth month following the end of the fiscal year. Here, the due date is June 15.
87. A qualifying child cannot include: a. A nonresident alien. b. A married son who files a joint return. c. A daughter who is away at college. d. A brother who is 28 years of age and disabled. e. A grandmother.
E
101. During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss. Presuming adequate income, how much of these losses may Kim claim? a. $0. b. $1,000. c. $2,000. d. $3,000. e. None of the above
C
103. Kirby is in the 15% tax bracket and had the following capital asset transactions during 2014: Long-term gain from the sale of a coin collection $11,000 Long-term gain from the sale of a land investment 10,000 Short-term gain from the sale of a stock investment 2,000 Kirby's tax consequences from these gains are as follows: a. (5% × $10,000) + (15% × $13,000). b. (15% × $13,000) + (28% × $11,000). c. (0% × $10,000) + (15% × $13,000). d. (15% × $23,000). e. None of the above.
C
69. Regarding the tax formula and its relationship to Form 1040, which, if any, of the following statements is correct? a. Most exclusions from gross income are reported on page 2 of Form 1040. b. An "above the line deduction" refers to a deduction from AGI. c. A "page 1 deduction" refers to a deduction for AGI. d. The taxable income (TI) amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040. e. None of the above
C
83. Kyle and Liza are married and under 65 years of age. During 2014, 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 2013. 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, 2014, at age 90, has for many years qualified as their dependent. How many personal and dependency exemptions should Kyle and Liza claim? a. Two. b. Three. c. Four. d. Five. e. None of the above.
C
90. The Hutters filed a joint return for 2014. They provide more than 50% of the support of Carla, Melvin, and Aaron. Carla (age 18) is a cousin and earns $2,800 from a part-time job. Melvin (age 25) is their son and is a full-time law student. He received from the university a $3,800 scholarship for tuition. Aaron is a brother who is a citizen of Israel but resides in France. Carla and Melvin live with the Hutters. How many personal and dependency exemptions can the Hutters claim on their Federal income tax return? a. Two. b. Three. c. Four. d. Five. e. None of the above
C
92. Regarding the rules applicable to filing of income tax returns, which, if any, of the following is an incorrect statement: a. Married persons who file joint returns cannot later (after the due date of the return) substitute separate returns. b. Married persons who file separate returns can later (after the due date of the return) substitute a joint return. c. The usual test as to when a taxpayer must file a return is based on the total of the following: personal exemption + basic standard deduction + both additional standard deductions. d. Special filing requirement rules exist for taxpayers who are claimed as dependents of another. e. None of the above.
C
97. Arnold is married to Sybil, who abandoned him in 2013. He has not seen or communicated with her since April of that year. He maintains a household in which their son, Evans, lives. Evans is age 25 and earns over $6,000 each year. For tax year 2014, Arnold's filing status is: a. Married, filing jointly. b. Head of household. c. Married, filing separately. d. Surviving spouse. e. Single.
C
79. Sylvia, age 17, is claimed by her parents as a dependent. During 2014, she had interest income from a bank savings account of $2,000 and income from a parttime job of $4,200. Sylvia's taxable income is: a. $4,200 - $4,550 = $0. b. $6,200 - $5,700 = $500. c. $6,200 - $4,550 = $1,650. d. $6,200 - $1,000 = $5,200. e. None of the above.
C Sylvia's standard deduction is $4,200 (earned income) + $350 = $4,550. Thus, her taxable income is $1,650 ($6,200 - $4,550). She is not eligible for a personal exemption.
80. Tony, age 15, is claimed as a dependent by his grandmother. During 2014, Tony had interest income from Boeing Corporation bonds of $1,000 and earnings from a parttime job of $700. Tony's taxable income is: a. $1,700. b. $1,700 - $700 - $1,000 = $0. c. $1,700 - $1,050 = $650. d. $1,700 - $1,000 = $700. e. None of the above.
C Tony's standard deduction of $1,050 ($700 + $350) partially offsets his gross income of $1,700, resulting in taxable income of $650.
100. Which, if any, of the following is a correct statement relating to the kiddie tax? a. If the parents are divorced, the income of the noncustodial parent is used to determine the allocable parental tax. b. The components for the application of the kiddie tax are not subject to adjustment for inflation. c. If the kiddie tax applies, the parents must include the income of the child on their own income tax return. d. The kiddie tax does not apply if both parents of the child are deceased. e. None of the above.
D
105. During 2014, Trevor has the following capital transactions: LTCG $ 6,000 Long-term collectible gain 2,000 STCG 4,000 STCL 10,000 After the netting process, the following results: a. Long-term collectible gain of $2,000. b. LTCG of $6,000, Long-term collectible gain of $2,000, and a STCL of $6,000. c. LTCG of $6,000, Long-term collectible gain of $2,000, and a STCL carryover to 2015 of $3,000. d. LTCG of $2,000. e. None of the above.
D
72. Which, if any, of the following is a deduction for AGI? a. State and local sales taxes. b. Interest on home mortgage. c. Charitable contributions. d. Unreimbursed moving expenses of an employee. e. None of the above
D
88. Ellen, age 12, lives in the same household with her father, grandfather, and uncle. The cost of maintaining the household is provided by her grandfather (40%) and her uncle (60%). Disregarding tie-breaker rules, Ellen is a qualifying child as to: a. Only her father. b. Only her grandfather and uncle. c. Only her uncle. d. All parties involved (i.e., father, grandfather, and uncle). e. None of the above.
D
94. Emily, whose husband died in December 2013, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2014? (Note: Emily is the executor of her husband's estate.) a. Single. b. Married, filing separately. c. Surviving spouse. d. Head of household. e. Married, filing jointly.
D
96. Nelda is married to Chad, who abandoned her in early June of 2014. She has not seen or communicated with him since then. She maintains a household in which she and her two dependent children live. Which of the following statements about Nelda's filing status in 2014 is correct? a. Nelda can use the rates for single taxpayers. b. Nelda can file a joint return with Chad. c. Nelda can file as a surviving spouse. d. Nelda can file as a head of household. e. None of the above statements is appropriate.
D
77. During 2014, Sarah had the following transactions: Salary $ 80,000 Interest income on City of Baltimore bonds 1,000 Damages for personal injury (car accident) 100,000 Punitive damages (same car accident) 200,000 Cash dividends from Chevron Corporation stock 7,000 Sarah's AGI is: a. $185,000. b. $187,000. c. $285,000. d. $287,000. e. $387,000.
D : $80,000 (salary) + $200,000 (punitive damages) + $7,000 (cash dividends) = $287,000. The damages from personal injury and the municipal bond interest are nontaxable exclusions.
68. In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct? a. In arriving at AGI, a taxpayer must elect between claiming deductions for AGI and deductions from AGI. b. In arriving at taxable income, a taxpayer must elect between claiming deductions for AGI and deductions from AGI. c. If a taxpayer has deductions for AGI, the standard deduction is not available. d. In arriving at taxable income, a taxpayer must elect between deductions for AGI and the standard deduction. e. None of the above.
E
85. In which, if any, of the following situations may the individual not be claimed as a dependent of the taxpayer? a. A former spouse who lives with the taxpayer (divorce took place last year). b. A stepmother who does not live with the taxpayer. c. A married daughter who lives with the taxpayer. d. A half brother who does not live with the taxpayer and is a citizen and resident of Canada. e. A cousin who does not live with the taxpayer.
E
91. 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 the above
E
95. Which of the following taxpayers may file as a head of household in 2014? Ron provides all the support for his mother, Betty, who lives by herself in an apartment in Fort Lauderdale. Ron pays the rent and other expenses for the apartment and properly claims his mother as a dependent. Tammy provides over one-half the support for her 18-year old brother, Dan. Dan earned $4,200 in 2014 working at a fast food restaurant and is saving his money to attend college in 2015. Dan lives in Tammy's home. Joe's wife left him late in December of 2013. No legal action was taken and Joe has not heard from her in 2014. Joe supported his 6-year-old son, who lived with him throughout 2014. a. Ron only. b. Tammy only. c. Joe only. d. Ron and Joe only. e. Ron, Tammy, and Joe
E
82. Wilma, age 70 and single, is claimed as a dependent on her daughter's tax return. During 2014, she had interest income of $2,500 and $800 of earned income from baby sitting. Wilma's taxable income is: a. $750. b. $900. c. $1,750. d. $2,200. e. None of the above.
E : $3,300 gross income - greater of $1,000 or ($800 earned income + $350) - $1,550 (additional standard deduction for age 65 and older) = $600. She is not eligible for a personal exemption.
78. In 2014, Cindy had the following transactions: Salary $90,000 Short-term capital gain from a stock investment 4,000 Moving expense to change jobs (11,000) Received repayment of $20,000 loan she made to her sister in 2009 (includes no interest) 20,000 State income taxes (5,000) Cindy's AGI is: a. $114,000. b. $103,000. c. $98,000. d. $94,000. e. $83,000.
E : $90,000 (salary) + $4,000 (gain on stock investment) - $11,000 (moving expenses) = $83,000. The loan repayment of $20,000 is a return of capital and has no effect on gross income. State income taxes paid are a deduction from AGI (or a standard deduction) and has no impact on the determination of AGI.
76. During 2014, Esther had the following transactions: Salary $70,000 Interest income on Xerox bonds 2,000 Inheritance from uncle 40,000 Contribution to traditional IRA 5,500 Capital losses 2,500 Esther's AGI is: a. $62,000. b. $64,000. c. $67,000. d. $102,000. e. $104,000.
b : $70,000 (salary) + $2,000 (interest) - $5,500 (IRA contribution) - $2,500 (capital losses) = $64,000. The inheritance is a nontaxable exclusion. The capital losses are deductible.