ACC 331 Chapter 4

Which of the following criteria is necessary to qualify as a dependent of another taxpayer? (Check all that apply.) Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico Must be considered both a qualifying child and a qualifying relative Must be considered either a qualifying child or a qualifying relative Must NOT be required to file a tax return of his own 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 separately

Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico Must be considered either a qualifying child or a qualifying relative 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 separately

Which one of the following assets is classified as a capital asset? A car used personally Accounts receivable from the sale of goods Inventory in a business A building used in a business

a car used personally

character of income: ordinary

income or loss that is taxed at the ordinary rates provided in the tax rate schedules

exclusions

realized income items that taxpayers permanently exclude from taxation

form 1040

the form individuals generally use to report their taxable income

In 2019, Ryan files as head of household and has taxable income of $122,500. None of his taxable income consists of capital gains or qualified dividends. Using the tax rate schedule, his tax liability rounded to the nearest dollar, totals $__________

$22154

Will and Lyndsey are married with no dependents and file a joint tax return. In 2019, they paid $3,000 in qualified student loan interest in addition to $22,550 in itemized deductions. What is the total of their "FROM AGI" deductions in 2019? 1.)25,250 2.)$27,400 3.) $24,400 4.)$22,250

$24,400!!!! $25,250 Rationale: Student loan interest is a FOR AGI deduction. $27,400 Rationale: They can deduct the larger of their itemized deductions or the standard deduction, which for married filing joint couples in 2019 is $24,400. Student loan interest is a FOR AGI deduction. $24,400 $22,250 Rationale: They can deduct the larger of their itemized deductions or the standard deduction, which for married filing joint couples in 2019 is $24,400.

examples of for AGI deductions

-alimony paid (pre-2019 decree) -health insurance deduction for self-employed taxpayers -rental and royalty expenses -capital losses (net losses limited to $3000 for the year) -one half of self-employment taxes -business expenses -losses on dispositions of assets used in trade or business -contributions to qualified retirement accounts

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

-deduction -credit

examples of support test

-food, school lunches, toilet articles, and haircuts -clothing -recreation- including toys, summer camp, horseback riding -medical and dental care -child care expenses -allowance and gifts -wedding costs -lodging -education

Some tax deductions are subtracted ____ AGI and some are subtracted ____ AGI.

-for -from

For tax years beginning in 2018, a taxpayer's from AGI deductions include the greater of the standard deduction or the taxpayer's _____ deductions and 20% of the taxpayer's qualified ____ income.

-itemized -business

examples of from AGI deductions include

-itemized deductions -standard deductions -qualified business income deduction

primary categories of itemized deductions

-medical and dental expenses (deductible until they exceed 10%) -taxes -interest expense -gifts to charity (charitable contributions) -other miscellaneous dedutions

Sheila and Joe Wells are married with two dependent children. During 2019, they have gross income of $159,800, deductions for AGI of $5,500, itemized deductions of $25,000 and tax credits of $2,000. The Wells' had $22,000 withheld by their employer for federal income tax. They have a tax (due/refund) of $

-refund -3837

Which of the following taxes may be imposed in addition to the individual income tax and are calculated on tax bases other than the regular taxable income? (Check all that apply.) Self-employment tax Value-added tax Alternative minimum tax Capital gains tax

-self-empployment -alternative minimum tax RATIONALE -the US doesnt have a Value added tax -capital gains are taxed as part of individual income tax

tax prepayments include

-withholdings -estimated tax payments -tax that the taxpayer overpaid on the prior-year tax return that the taxpayer elects to apply as an estimated payment for the current year instead of receiving a refund

Under a multiple support agreement, taxpayers 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? (Check all that apply.) 1 All other individuals contributing more than 10 percent support provides statements to taxpayer agreeing NOT to claim the individual as a dependent. 2 The individual earns more than the exemption amount, but NOT enough to provide half of his support. 3 No one taxpayer paid over one-half of the individual's support. 4 The taxpayer and a least one other person provided over one-half of the support of the individual. 5 The taxpayer contributed over 5 percent of the individual's support for the year.

1,3,4

Rank the filing statuses according to which is the most favorable for taxpayers.

1.)married filing jointly 2.)HOH 3.)single

Which of the following choices describe tax deductions? (Choose all that apply.) 1.) Tax deductions, like income, follow the all-inclusive concept. 2.)Tax deductions are a matter of legislative grace. 3.)Taxpayers are NOT allowed to deduct anything unless a specific tax provision allows them to do so. 4.)Tax deductions reduce an individual's tax liability dollar for dollar.

2.)Tax deductions are a matter of legislative grace. 3.)Taxpayers are NOT allowed to deduct anything unless a specific tax provision allows them to do so. RATIONALE: Tax deductions, like income, follow the all-inclusive concept. Rationale: For income, the all-inclusive concept states that all sources of income are taxable unless specifically excluded by Congress. For deductions, the opposite is true. Nothing is deductible unless specifically ALLOWED by Congress. RATIONALE: Tax deductions reduce an individual's tax liability dollar for dollar. Rationale: This statement describes "tax credits." Tax deductions reduce taxable income.

The gross income test requires that a qualifying relative's gross income for the year be less than $

4200

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

A riding lawnmower used by a child to mow the family yard

Which of the following choices is NOT a form of a tax prepayment? A tax refund received in the current year for the prior year Estimated tax payments the taxpayer made directly to the IRS Income tax withheld from a taxpayer's salary or wages by an employer An overpayment of taxes in the prior year that was applied as an estimated payment for the current year

A tax refund received in the current year for the prior year

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

A taxpayer may deduct the greater of his standard deduction or his itemized deductions from AGI to arrive at taxable income.

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

A taxpayer may deduct the greater of his standard deduction or his itemized deductions from AGI to arrive at taxable income.

Which of the following items are deductions FOR adjusted gross income? (Check all that apply.) Mortgage interest on a personal residence Alimony paid for divorces finalized before 1/1/2019 Personal and dependency exemptions Capital losses Health insurance for self-employed persons Contributions to (non Roth) qualified retirement accounts

Alimony paid for divorces finalized before 1/1/2019 Capital losses Health insurance for self-employed persons Contributions to (non Roth) qualified retirement accounts

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

Amy lived with her parents until the end of April. She moved into an apartment on May 1

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? Annie must be related to the Andrew in order to meet the support test. Andrew must provide over half of Annie's support for the year. Annie must live with the Andrew for over half of the year in order to meet the support test. Annie must NOT provide over half of her own support, but it doesn't matter who is providing the support.

Andrew must provide over half of Annie's support for the year.

Choose the statement you think is INCORRECT when comparing tax deductions and tax credits? Both tax deductions and tax credits reduce taxable income. Both tax deductions and tax credits are a matter of legislative grace. . Both tax deductions and tax credits are specifically defined by Congress and are narrowly defined.

Both tax deductions and tax credits reduce taxable income.!!!! Both tax deductions and tax credits are a matter of legislative grace. Rationale: Tax deductions reduce taxable income, while tax credits reduce the tax liability dollar for dollar. Both tax deductions and tax credits are specifically defined by Congress and are narrowly defined. Rationale: Tax deductions reduce taxable income, while tax credits reduce the tax liability dollar for dollar.

Which of the following individuals would be considered as an eligible relatives to meet the relationship test for being a qualifying child of the taxpayer? (Check all that apply.) Father Brother (younger than the taxpayer) Child Niece (younger than the taxpayer) Cousin (younger than the taxpayer) Grandchild

Brother (younger than the taxpayer) Child Niece (younger than the taxpayer) Grandchild

support test

Child must not provide more than half of his or her own support Scholarships of actual child (not grandchild, for example) are excluded from support computation

Which of the following choices are forms of tax prepayments? (Check all that apply.) Estimated tax payments the taxpayer made directly to the IRS A tax credit used to reduce the tax liability in the current year A tax refund received in the current year for the prior year An overpayment of taxes in the prior year that was applied as an estimated payment for the current year Income tax withheld from a taxpayer's salary or wages by an employer

Estimated tax payments the taxpayer made directly to the IRS An overpayment of taxes in the prior year that was applied as an estimated payment for the current year Income tax withheld from a taxpayer's salary or wages by an employer

True or false: Depreciable assets used in a trade or business are classified as capital assets. True False

FALSE True Rationale: Capital assets do not include accounts receivable from the sale of goods and services, inventory, or assets used in a trade or business. False Rationale: Capital assets do not include accounts receivable from the sale of goods and services, inventory, or assets used in a trade or business.

referred to as "deductions above the line" because they reduce AGI

FOR agi deductions because they reduce AGI

True or false: In order to meet the support test for a qualifying child, the taxpayer must provide more than half of the individual's support for the year.

False Rationale: The child may be receiving support from someone other than the taxpayer. The rule is that the CHILD cannot provide over half of his/her own support.

How does a taxpayer determine which filing status to use? (Check all that apply.) Filing status may depend on whether or not the taxpayer has dependents. Filing status depends on whether or not the taxpayer is married at the end of the year. Filing status depends on the amount of taxable income the taxpayer has for the year. Filing status depends on the age of the taxpayer.

Filing status may depend on whether or not the taxpayer has dependents. Filing status depends on whether or not the taxpayer is married at the end of the year. Filing status depends o

Why are for AGI deductions preferable to from AGI deductions? For AGI deductions are only taken if itemized deduction exceeds standard deduction. For AGI deductions reduce AGI thus increasing deductibility of from AGI deductions based on AGI. For AGI deductions cause a dollar for dollar drop in tax liability.

For AGI deductions reduce AGI thus increasing deductibility of from AGI deductions based on AGI.

Which of the following individuals would meet the relationship test for being a qualifying relative of the taxpayer if s/he has only lived with the taxpayer for eight months of the year? (Check all that apply.) Grandchild Father Cousin Friend Niece Brother

Grandchild Father Niece Brother

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

Linda is deemed to meet the age test because she is permanently and totally disabled.

Which filing status is used if one spouse dies during the year and the surviving spouse does not remarry before the end of the year? Head of household Married filing jointly (or separately) Single Qualifying widow or widower

Married filing jointly (or separately) RATIONALE: Qualifying widow or widower Rationale: This status is used in the two years following the death of a spouse if there is a dependent child in the household.

Kayla and Ben were married in November of the current year. What will be their filing status for the current year? Married filing jointly (or separately) because they were married as of the end of the year One spouse can file as head of household and the other will file single since they live together but have been married less than half the year Single because they were married for less than half of the year Married filing separately because they have been married for less than half of the year

Married filing jointly (or separately) because they were married as of the end of the year RATIONALE: One spouse can file as head of household and the other will file single since they live together but have been married less than half the year Rationale: MFJ (or MFS) - marital status is determined on the last day of the tax year Single because they were married for less than half of the year Rationale: MFJ (or MFS) - marital status is determined on the last day of the tax year Married filing separately because they have been married for less than half of the year Rationale: MFJ (or MFS) - marital status is determined on the last day of the tax year

Which two filing statuses have the same standard deduction amount? Married filing separately and single Married filing separately and married filing jointly Head of household and married filing separately Qualifying widow/widower and single

Married filing separately and single

Which of the following individuals would meet the relationship test for being a qualifying child of the taxpayer? (Check all that apply.) Nephew (younger than the taxpayer) Stepson Half-sister (younger than the taxpayer) Grandmother Aunt Cousin (younger than the taxpayer)

Nephew (younger than the taxpayer) Stepson Half-sister (younger than the taxpayer)

Which of the following requirements are necessary to qualify for head of household status?

Pay more than half the costs of keeping up a home for the year Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year

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

Pay more than half the costs of keeping up a home for the year Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year

Which of the following criteria will contribute toward qualifying a taxpayer for head of household status? (Check all that apply.) Be married with a spouse that is not employed outside the home Provide over half the cost of maintaining a household for a dependent parent not living with the taxpayer Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year Have lived with a qualifying person in the taxpayer's home for more than half the year Be a qualifying widow or widower

Provide over half the cost of maintaining a household for a dependent parent not living with the taxpayer Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year Have lived with a qualifying person in the taxpayer's home for more than half the year Pay more than half the costs of keeping up a home for the year

Which one of the following items is NOT a deduction FOR AGI? Real estate taxes on personal residence Self employment expenses Rental property expenses One-half of self-employment taxes

Real estate taxes on personal residence

Which of the following individuals meet the requirements to be qualifying children for Tonya? (Choose all that apply.) Sandy (age 23) does not provide half of her own support. She is a full-time college, earned $7,000 this year, and lives with her aunt, Tonya. Ron (age 20) provides over half of his own support. He is a full-time college student, earned $12,000 this year, and lives with his mother, Tonya.. 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. Vinnie (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.

Sandy (age 23) does not provide half of her own support. She is a full-time college, earned $7,000 this year, and lives with her aunt, Tonya. Vinnie (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. RATIONALE: Ron (age 20) provides over half of his own support. He is a full-time college student, earned $12,000 this year, and lives with his mother, Tonya. Rationale: Ron meets the age, relationship, and residence tests. However, Ron provides over half of his own support which disqualifies him as a qualifying child of Tonya. 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. Rationale: Pam meets the age, support, and residence tests. However, Pam does not meet the relationship test as cousins are not considered relatives for the qualifying child test.

Which of the following statements is correct? Stock which has appreciated in value must be sold before it is considered part of gross income. Stock which has appreciated in value is included in gross income, regardless of whether or not it has been sold. Stock that has decreased in value during the year can be deducted from gross income.

Stock which has appreciated in value must be sold before it is considered part of gross income. RATIONALE FOR WRONG OPTIONS: Stock which has appreciated in value is included in gross income, regardless of whether or not it has been sold. Rationale: A gain on stock is included in gross income when the stock is sold, thereby giving the taxpayer the wherewithal to pay the tax due. Stock that has decreased in value during the year can be deducted from gross income. Rationale: A loss on the value of stock cannot be deducted until the stock is sold

If an individual is a qualifying child for both of his parents who divorced during the year, which parent is entitled to claim the dependency exemption? The parent who files his/her tax return the earliest The parent with the lowest adjusted gross income The child gets to choose which parent gets the exemption The parent with whom the child has lived with the longest during the year

The parent with whom the child has lived with the longest during the year

Which of the following statements are true regarding the qualifying widow or widower filing status? (Check all that apply.) 1.)The surviving spouse can NOT use this status if he or she has dependents. 2.)The status is used in the year that one spouse died. 3.)The surviving spouse must have dependents. 4.)The surviving spouse must NOT have remarried during the year. 5.)The status may be used for up to two years after the year the other spouse died.

The surviving spouse must have dependents. The surviving spouse must NOT have remarried during the year. The status may be used for up to two years after the year the other spouse died. RATIONALE: The status is used in the year that one spouse died. Rationale: The married filing jointly or married filing separately status should be used in the year of death.

Which of the following are requirements that must be met to qualify as an abandoned spouse? (Check all that apply.) The taxpayer pays more than half the costs of maintaining his or her home for the entire year. The taxpayer must have lived apart from the other spouse for the entire year. The taxpayer is still married at the end of the year. The taxpayer may qualify whether or not there are dependents living in the home.

The taxpayer pays more than half the costs of maintaining his or her home for the entire year. The taxpayer is still married at the end of the year.

Which of the following are requirements that must be met to qualify as an abandoned spouse? (Check all that apply.) The taxpayer pays more than half the costs of maintaining his or her home for the entire year. The taxpayer must have lived apart from the other spouse for the entire year. The taxpayer is still married at the end of the year. The taxpayer may qualify whether or not there are dependents living in the home.

The taxpayer pays more than half the costs of maintaining his or her home for the entire year. The taxpayer is still married at the end of the year.

Which of the following individuals meet the requirements of a qualifying person for determining head of household filing status? The taxpayer's mother who is a dependent of the taxpayer, but lives in her own home which is maintained by the taxpayer A friend of the taxpayer who is a qualifying relative because he lives with the taxpayer for the entire year An unmarried son who is NOT a dependent but lives with his father for most of the year The taxpayer's child who resides with his other parent for over half the year, but where the taxpayer gets the dependency exemption

The taxpayer's mother who is a dependent of the taxpayer, but lives in her own home which is maintained by the taxpayer

character of income

Type of income; determines the rate at which the income will be taxed

When can a single taxpayer's mother or father be a qualifying person for determining head of household filing status? When the parent lives with the taxpayer regardless of whether he or she is a dependent of the taxpayer Never; only a qualifying child can cause a taxpayer to qualify for head of household status When the taxpayer can claim a dependency exemption for the parent and the taxpayer pays over half the cost of maintaining the parent's home

When the taxpayer can claim a dependency exemption for the parent and the taxpayer pays over half the cost of maintaining the parent's home

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? William does NOT meet the age test because he is not Chasity's child. William does NOT meet the age test because he is not under the age of 19. William meets the age test because he is full-time student under age 24. William does NOT meet the age test because he is older than Chasity.

William does NOT meet the age test because he is older than Chasity.

All-inclusive income concept

a definition of income that says that gross income means all income from whatever source derived.

qualifying relative

a person who is not a qualifying child and satisfies the Relationship test Support test Gross income test

A taxpayer who is married at the end of the 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 order to meet the criteria for a qualifying ____ (choose either: child/relative), the dependent must NOT have provided more than half of his or her own support for the year. However, the support may have been provided by someone other than the taxpayer.

child

common tax credits

child tax credit: $2,000 per qualifying child (under the age of 17 at years end) and a $500 credit for other qualifying dependents -child and dependent care credit -earned income credit -American opportunity credit -lifetime learning credits

from AGI deductions

commonly referred to as "deductions below the line" because they are deducted after AGI has been determined

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 taxpayers are eligible to claim Brooke as a dependent? No one Only Craig Hillary, Craig and David Craig and David

craig and david hillary cannot claim because she only provided 8%

All sources of income are taxable unless specifically excluded through a tax provision. However, _____ are NOT permitted unless a specific tax provision allows them

deductions

For AGI deductions

deductions that are subtracted from gross income to determine AGI. the distinction between the deduction types is particularly important bc AGI is a reference point often used in determining the extent to which taxpayers are allowed to claim certain tax benefits

True or false: A taxpayer may deduct both his standard deduction and his itemized deductions from AGI in order to calculate taxable income. True False

false RATIONALE: He can only deduct the one of these amounts and should usually choose the larger of the two.

True or False: The gross income test requires that a qualifying relative's gross income for the year be less than $5,000 for tax year 2019. True

false the gross income limit for 2019 is $4,200

Which of the following statements is correct regarding the choice of a taxpayer's filing status?

filing status depends on marital status and whether the taxpayer has dependents

character of income: capital

gains or losses on the disposition or sale of capital assets. In general capital assets are all assets other than: 1.)Accounts receivable from the sale of goods or services 2.)inventory and other assets held for sale in the ordinary course of business 3.) Assets used in a trade or business, including supplies

loss on the sale of a capital asset

generates a deduction for the taxpayer that is capped at $3000 (losses in excess are carried forward and deducted when the taxpayer reports a capital gain) -personal use assets sold at a loss are not deductible

When a divorced taxpayer 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? Head of household Married filing separately Qualifying widower Single

head of household

In a situation where the parents are divorced and the child resides with both parents for the same amount of time during the year, the dependency exemption should go to the parent with the ______. lowest AGI highest taxable income lowest taxable income highest AGI

highest AGI

When a divorced taxpayer 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? Single Qualifying widower Married filing separately Head of household

hoh

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

income from a transaction with a second party

Preferentially taxed income

income taxed at a preferential rate such as long-term capital gains and qualified dividends.

Head of household status is (less/more) favorable than the married filing jointly status, but (less/more) favorable than the single filing status.

less more

An individual that is unrelated to the taxpayer may meet the relationship test for a qualifying relative if he or she: lives with the taxpayer for less than the entire year, but more than half the year. lives with the taxpayer for the entire year. marries the taxpayer during the year.

lives with the taxpayer for the entire year.

long term/ short term capital assets

long-term: when the taxpayer owns the capital asset for more than one year before selling it (generally taxed at 15%, 20% for high income tax payers and 0% for low income) short term: when the taxpayer owns the capital asset for one year or less before selling it (taxed at ordinary rate but is not considered ordinary)

Which filing status is allowed the highest standard deduction amount? Single Married filing jointly Married filing separately Head of household

married filing jointly

In order to meet the requirements of the residence test for a qualifying child, the individual must live with the taxpayer for: at least one-third of the year longer than he has resided with anyone else during the year the entire year more than half the year

more than half the year

age test: qualifying child

must be younger than the taxpayer and either 1.) under the age 19 at the end of the year 2.) under the age 24 at the end of the year and a full time student ( 5 months out of the year)

examples of capital assets

nonbusiness assets such as personal use automobiles or personal residences and assets held for investment such as stocks and bonds are capital assets

Income that is taxed in the current year according to the tax rate schedule is referred to as ______ income. tax-deferred long-term capital gains tax-exempt ordinary

ordinary

if qualified dividends does not meet the qualified dividend requirements it is taxed at the

ordinary tax rate

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

parent of taxpayer

Examples of a tax _____ include income taxes withheld from a taxpayer's salary by an employer, estimated tax payments paid directly to the IRS, and amounts from a prior year overpayment that were applied to the current year's tax liability.

prepayment

Dividends from corporations that meet certain requirements may be taxed at a favorable rate. These dividends are referred to as: capital dividends. special dividends. favorable dividends. qualified dividends.

qualified dividends

Sheila and Joe Wells are married with two dependent children. During 2019, 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 tax (due/refund) of $.

refund $3,705

The four tests that must be met to qualify as a qualifying child are

relationship, age, residence, support

support test for a qhalifying relative

requires that the taxpayer pay more than half the qualifying relative's support/living expenses

Which of the following items does NOT constitute support when determining who provided the support for a child of the taxpayer who is a full-time student? Recreational activities and camps Food and clothing Allowances and gifts Scholarships

scholarships

In addition to the individual income tax, individuals may be required to pay other taxes. Owners of unincorporated businesses may have to pay ______tax.

self-employment

A taxpayer may file as a single taxpayer when: she has been unmarried for over half of the year she is separated from her husband, but not yet divorced her spouse died during the year she is unmarried at the end of the tax year

she is unmarried at the end of the tax year

Defer taxes

some provisions allow taxpayers to defer taxes to the next year (these deferred items are included in gross income in a later year)

The U.S. tax laws are based on the all-inclusive concept where gross income includes all realized income from "whatever __ __

source derived

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? Relationship Residence Support Gross income

support

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? Relationship Support Gross income Residence

support

after calculating the total tax and subtracting their available credits, taxpayers determine their taxes due (or tax refund) by subtracting the _____ _____ ____ ___ ___ ___

tax prepayments from the total tax remaining after credits

if tax prepayments exceed the total tax after subtracting credits, the taxpayer receives a ____ ____

tax refund (or elects to apply the refund as an estimated tax payment) for the difference

legislative grace

the concept that taxpayers receive certain tax benefits only because Congress writes laws that allow taxpayers to receive the tax benefits (deductions)

if tax prepayments are less than the total tax after subtracting credits..

the taxpayer owes additional tax and potentially a penalty for the underpayment

alternative minimum tax (self-employment taxes)

these taxes are imposed on tax bases other than the individual's regular taxable income

temporarily away

time that a child or the taxpayer is temporarily away from the taxpayer's home because of illness, is pursuing an education, or has other special circumstances

Adjusted Gross Income (AGI)

total income before subtracting any deductions or expenses (line 7 on page 2 of form 1040)

True or false: For AGI deductions are preferable to from AGI deductions. True False

true

tax credits

unlike deductions which reduce TAXABLE income, tax credits DIRECTLY REDUCE TAXES PAYABLE