Ch 1. The Individual Income Tax Return Quiz

Oscar and Mary have no dependents and file a joint income tax return for 2014. They have adjusted gross income of $140,000 and itemized deductions of $30,000. What is the amount of taxable income that Oscar and Mary must report on their 2014 income tax return?

$102,100 Feedback: ($140,000 - $30,000 - $7,900) Two exemptions at $3,950 each.

Eugene and Velma are married. For 2014, Eugene earned $25,000 and Velma earned $30,000. They have decided to file separate returns and are each entitled to claim one personal exemption. They have no deductions for adjusted gross income. Eugene's itemized deductions are $11,200 and Velma's are $4,000. Assuming Eugene and Velma do not live in a community property state, what is Velma's taxable income?

$22,050 Feedback: ($30,000 - $4,000 - $3,950). When married filing separately, if one spouse itemizes, then both spouses must itemize (same is true if using the standard deduction).

An individual is a head of household. What is her standard deduction?

$9,100

Which of the following is correct?

A partnership is a reporting entity but not a taxable entity. Feedback: Individuals and corporations must report and are taxed; whereas partnerships only report but are not taxed (the partners are taxed on their share of the partnership's income, gains, deductions and losses).

Which of the following taxpayers does not have to file a tax return for 2014?

A qualifying widow (age 67) with a dependent child and income of $14,500

Which of the following relatives will not satisfy the relationship test for the dependency exemption?

All of the above satisfy the test

Internet users can sign on to http://www.irs.gov/ and:

All of the above.

Taxpayers who are blind get the benefit of:

An additional amount added to their standard deduction.

Partnerships:

Are not taxable entities. Feedback: Partnerships are reporting entities but not taxable entities. The income flows through and is taxed to the partners.

Which of the following is not a test that must be met for a child to be considered a dependent

Blood test

The 0.9 percent ACA Medicare surtax applies to:

Earned income Feedback: ​The 0.9% medicare tax applies to earned income not unearned income.

Which of the following is not a goal of the tax law?

Encouraging smaller families

Which of the following forms may be filed by individual taxpayers?

Form 1040 Feedback: Form 1041 is for trusts, Form 1065 is for partnerships, and Form 1120 is for corporations.

Wesley owns and operates the Cheshire Chicken Ranch in Turpid, Nevada. The income from this ranch is $49,000. Wesley wishes to use the easiest possible tax form. He may file:

Form 1040 Feedback: Self-employed taxpayers are not permitted to file using Form 1040-EZ of Form 1040A.

An unmarried taxpayer who maintains a household for a dependent child and whose spouse died four years ago should file as

Head of household

William is a divorced taxpayer who provides a home for his dependent child, Edward. What filing status should William indicate on his tax return?

Head of household

Electronically filed tax returns:

Offer faster refunds than paper returns.

During 2014, Howard maintained his home in which he and his 16 year-old son resided. The son qualifies as his dependent. Howard's wife died in 2013. What is his filing status for 2014?

Qualifying widow(er)

Electronic filing (e-filing):

Reduces the chances that the IRS will make mistakes when inputting tax return information.

Form 1040 allows a taxpayer to report which of the following items that are not allowed for taxpayers who file Form 1040A

Self-employment income.

Your standard deduction will be $6,200 in 2014 if you are:

Single and 45 years old.

Which one of the following provisions was passed by Congress to meet a social goal of the tax law?

The charitable deduction. Feedback: Deductions for job hunting expenses, moving expenses, and soil and water conservation costs for farmers are economic goals.

Which of the following is a true statement with respect to the gross income test for the qualifying relative dependency exemption?

The relative must receive less than $3,950 of gross income in order to qualify.

In 2013, the Affordable Care Act (ACA) added a new Medicare surtax of 3.8 percent on net investment income

True

Robert is a single taxpayer who has AGI of $145,000 in 2014; his taxable income is $122,000. What is his federal tax liability for 2014?

$27,336 Feedback: $18,193.75 + 28% x ($122,000 - $89,350) = $27,336

Bob owns a rental property that he bought several years ago for $260,000. He has taken depreciation on the house of $35,000 since buying it. He sells it in 2014 for $290,000. His selling expenses were $12,000 for the year. What was Bob's realized gain on the sale?

$53,000 Feedback: ($290,000 - $12,000) - ($260,000 - $35,000) = $53,000

Alexis has a long-term capital loss of $13,000 on the sale of stock in 2014. She has no other capital gains or losses for the year. Her taxable income without this transaction is $57,000. What is her 2014 taxable income considering this capital loss?

$54,000 Feedback: ($57,000 - $3,000). Net capital loss is limited to $3,000 for individuals.

Eugene and Velma are married. For 2014, Eugene earned $25,000 and Velma earned $30,000. They have decided to file separate returns and are each entitled to claim one personal exemption. They have no deductions for adjusted gross income. Eugene's itemized deductions are $11,200 and Velma's are $4,000. Assuming Eugene and Velma do not live in a community property state, what is Eugene's taxable income?

$9,850 Feedback: ($25,000 - $11,200 - $3,950)

Ronald is 92 years old and in poor health. Clever investing earlier in his life has left him with a sizeable income. He is able to support his son Ed. Ed is 67 years old and a bit "confused," so he lives in a nursing home. Ed's income is less than $2,000. How many exemptions should Ronald claim on his tax return?

2

Albert and Louise, ages 66 and 64, respectively, filed a joint return for 2014. They provided all of the support for their blind 19 year-old son, who had no gross income. They also provided the total support of Louise's father, who is a citizen and life-long resident of Peru. How many exemptions may they claim on their 2014 tax return?

3 Feedback: Louise's father may not be claimed since he is not a US citizen or resident of US, Mexico or Canada.

Mr. and Mrs. Vonce, both age 62, file a joint return for 2014. They provided all the support for their daughter who is 19 years old, legally blind, and who earns no income. Their son, age 21 and a full-time student at a university, had $4,200 of income and provided 70 percent of his own support during 2014. How many exemptions may Mr. and Mrs. Vonce claim on their 2014 tax return?

3 Feedback: The Vonce's son does not meet the support test.

During 2013, Anita was entirely supported by her three sons, Dudley, Carlton, and Isidore, who provided support for her in the following percentages: Dudley 8 percent Carlton 45 percent Isidore 47 percent Which of the children may be allowed to claim his mother as a dependent, assuming a multiple support agreement exists?

Carlton or Isidore Feedback: If a dependent is supported by two or more and a multiple support agreement is filed, any one member of the support group with over 10% support may claim to support the dependent.

Which of the following is not a goal of the tax law?

Ensuring that all persons pay the same amount of tax.

A single taxpayer, who is not a dependent on another's return, not blind and under age 65, with income of $8,750 must file a tax return.

False, A single taxpayer, who is not a dependent on another's return, not blind and under age 65, with income of at least $10,150 must file a tax return.

An item is not included in gross income unless the tax law specifies that the item is subject to taxation.

False, Gross income includes all income, unless the tax law provides for a specific exclusion.

The head of household tax rates are higher than the rates for a single taxpayer.

False, Head of household tax rates are lower than tax rates for single taxpayers.

A child for whom a dependency exemption is claimed on the parents' tax return may also claim a personal exemption on his or her own tax return.

False, If a child is claimed as a dependent on the parent's tax return, then the child is not allowed to claim a personal exemption on his/her own tax return.

A taxpayer who maintains a household with an unmarried child may qualify to file as head of household even if the child is not the taxpayer's dependent.

False, In order to file as head of household, a taxpayer must pay more than half of the cost of keeping a home that was the principal residence of a dependent child or other qualifying dependent relative.

A married person with a dependent child may choose to file as head of household if it reduces his or her tax liability.

False, In order to file as head of household, the taxpayer must be unmarried or meet the definition of abandoned spouse.

If an unmarried taxpayer paid more than half the cost of keeping a home which is the principal place of residence of a nephew, who is not her dependent, she may use the head of household filing status.

False, In order to qualify for head of household status, the nephew must be a dependent.

If your spouse dies during the tax year and you do not remarry, you must file as single for the year of death

False, In the year of one spouse's death, the spouses are considered married for the full year.

If taxpayers are married and living together at the end of the year, they must file a joint tax return.

False, Married taxpayers may choose to file as married filing jointly or as married filing separately.

All taxpayers may use the tax rate schedule to determine their tax liability

False, Taxpayers with taxable income of less than $100,000 must use the tax tables to determine their tax liability.

Married taxpayers may double their standard deduction amount by filing separate returns.

False, The standard deduction for married filing jointly is $12,400, and the standard deduction for married filing separately is $6,200 each.

The US federal tax law's sole purpose is to raise revenue.​

False, The tax law has many goals including raising revenue.

If a taxpayer is due a refund, it will be mailed to the taxpayer regardless of whether he or she files a tax return.

False, Whether or not a taxpayer is required to file a tax return, the taxpayer must file a return in order to obtain a refund.

During 2014, Murray, who is 60 years old and unmarried, provided all of the support of his elderly mother. His mother was a resident of a home for the aged for the entire year and had no income. What is Murray's filing status for 2014, and how many exemptions should he claim on his tax return?

Head of household and 2 exemptions Feedback: Unlike other dependents, parents are not required to live with their children to claim Head of Household.

John, 45 years old and unmarried, contributed $1,000 monthly in 2014 to the support of his parents' household. The parents lived alone and their income for 2014 consisted of $500 from dividends and interest. What is John's filing status and how many exemptions should he claim on his 2014 tax return?

Head of household and 3 exemptions Feedback: Unlike other dependents, parents are not required to live with the children to claim Head of Household.

Alan, whose wife died in 2012, filed a joint tax return for 2012. He did not remarry and continues to maintain his home in which his four dependent children live. In the preparation of his tax return for 2014, Alan should file as:

Qualifying widow(er)

Match the letter of the filing status to the taxpayers below. Items may be used more than once. A. Qualifying widow(er) B. Head of household C. Married, filing separate returns D. Single E. Married, filing joint or married, filing separate

Qualifying widow(er) :The taxpayer's husband died last year. Her 13 year-old dependent daughter lives with her. , Head of household :The unmarried taxpayer supports his dependent mother, who lives next door in a separate apartment. , Married, filing separate returns :The taxpayer is married, but her husband disappeared with a girlfriend while on vacation in March of the current year. The taxpayer has no dependents. , Married, filing joint or married, filing separate :After living together for 6 months, the couple married December 31. , Head of household :The taxpayer who is unmarried legally adopted a child who lives with her. , Single :The taxpayer is unmarried and is living with his girlfriend.

Irma, widowed in 2013, pays all costs related to the home in which she and her unmarried son live. Her son does not qualify as her dependent. What is her filing status for 2014?

Single

John, age 25, is a full-time student at a state university. John lives with his unmarried sister, Ann, who provides over half of his support. His only income is $4,000 of wages from a part-time job at the college book store. What is Ann's filing status for 2014?

Single Feedback: Because John's income exceeds $3,950, he does not qualify as a dependent.

All of the following factors are important in determining whether an individual is required to file an income tax return, except

The taxpayer's total itemized deductions.

A dependency exemption may be claimed by the supporting taxpayer in the year of death of a dependent

True

A taxpayer who is living alone and is legally separated from his or her spouse under a separate maintenance decree at year-end should file as single.

True

An individual taxpayer with a net capital loss may deduct up to $3,000 per year against ordinary income.

True

An individual, age 22, enrolled on a full-time basis at a trade school, is considered a student for purposes of determining whether a dependency exemption is permitted.

True

For 2014, personal and dependency exemptions are $3,950 each

True

For taxpayers who do not itemize deductions, the standard deduction amount is subtracted from the taxpayer's adjusted gross income

True

Scholarships received by a student may be excluded for purposes of the support test for determining the availability of the dependency exemption.

True

Taxpayers can download tax forms from the IRS Internet site

True

Taxpayers who do not qualify for married, head of household, or qualifying widow or widower filing status must file as single.

True

Taxpayers with self-employment income of $400 or more must file a tax return.

True

The maximum official individual income tax rate for 2014 is 39.6 percent, not including the Medicare surtax on net investment income

True

The two types of exemptions are the personal exemption and the dependency exemption

True

A dependent child with earned income in excess of the available standard deduction amount must file a tax return.

True, A single dependent child (under 65) is required to file if unearned income is over $1,000 OR earned income is over $6,200 (which is the standard deduction amount) OR if gross income is more than the larger of $1,000 or earned income up to $5,850 + $350.

If a taxpayer's adjusted gross income exceeds certain threshold amounts, he or she may be required to reduce the amount of the otherwise allowable deductions for itemized deductions and personal and dependency exemptions in 2014.

True, For 2014, itemized deductions and personal and dependency exemptions are reduced for high income taxpayers.

A taxpayer with self-employment income of $600 must file a tax return.

True, Net earnings of at least $400 require filing a tax return.

The 3.8 percent ACA Medicare surtax does not apply to:

Wages Feedback: The 3.8% Medicare surtax applies to net investment income, not earned income such as wages.

In which of the following situations is the taxpayer not required to file a 2014 income tax return?

When the taxpayer is a single 67-year-old with wages of $9,800.

The IRS:

has an app for mobile phones.

Most taxpayers may deduct the standard deduction amount or the amount of their itemized deductions, whichever is higher

True

Partnership capital gains and losses are allocated separately to each of the partners

True

Depending on the amounts of income and other tax information, some individuals may report their income on

Form 1040A Feedback: Depending on circumstances, an individual may file using Forms 1040-EZ, 1040A or 1040.

Amended individual returns are filed on:

Form 1040X

If an individual wishes to amend his individual tax return, he will make the amendment using what form?

Form 1040X

Partnership income is reported on

Form 1065

Martin, a 50 year-old single taxpayer, paid the full cost of maintaining his dependent mother in a home for the aged for the entire year. What is the amount of Martin's standard deduction for 2014?

$9,100

Jill is a 16-year-old child who is claimed as a dependent by her parents. Jill's only income is $1,400 from her bank savings account. What is the amount of Jill's standard deduction for 2014?

$1,000 Feedback: The standard deduction for a dependent is the greater of $1,000 or $350 plus earned income up to the basic standard deduction. Jill's interest income is unearned income.

Brian is 60 years old, single and legally blind. Brian supports his father, who is 88 years old and blind, by paying the rent and other costs of his father's residence. What is the total standard deduction amount that Brian should claim on his 2014 tax return?

$10,650 Feedback: ($9,100 + $1,550)

Clay purchased Elm Corporation stock 20 years ago for $10,000. In 2014, he sells the stock for $29,000. What is Clay's gain or loss?

$19,000 long-term

A corporation is a reporting entity but not a tax-paying entity.

False , A corporation is subject to income tax and must report income annually.

Most states are community property states

False, Only nine states are community property states

Which of the following is not a capital asset

Inventory