Chapter 1: The Individual Tax Return

Tax law is a tool used by government to:

All of these choices are correct.

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

All of these choices are satisfy the test.

Eloise bought stock in ABC Corporation many years ago for $5,000. She sold it in 2015 for $7,500 and paid the broker $150. What is Eloise's gain or loss?

$2,350 long-term gain

Eugenia and Victor are married. For 2015, Eugenia earned $35,000 and Victor 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. Eugenia's itemized deductions are $7,400 and Victor's are $5,400. Assuming Eugenia and Victor do not live in a community property state, what is Eugenia's taxable income?

$23,600

Alan bought shares in Coca-Cola for $10,000 on November 15, 2014. On November 1, 2015, he sold the shares for $5,000. He has no other gains or losses in 2015. What does Alan report on his tax return?

$3,000 ordinary loss and $2,000 short-term carry-forward.

Olive and Marvin file a joint income tax return for 2015. They have adjusted gross income of $135,000 and itemized deductions of $37,000. What is the amount of deductions that Olive and Marvin may claim on their 2015 income tax return?

$37,000

Joyce is married and files a joint return with her husband. She works for a large corporation and earns $300,000 for 2015. What is Joyce's Medicare surtax for 2015?

$450

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

$9,250

Martina, a single taxpayer, paid the full cost of maintaining her dependent father in a home for the aged for the entire year. What is the amount of Martina's standard deduction for 2015?

$9,250

The U.S. income tax was enacted by the _____ amendment to the Constitution.

16th

In determining whether a person is a dependent of a taxpayer:

A child who provides more than one-half of his or her own support cannot be claimed as a dependent of someone else.

Which of the following is correct?

A partnership is a reporting entity but not a taxable entity.

Which of the following taxpayers does not have to file a tax return for 2015?

A qualifying widow (age 67) with a dependent child and income of $14,950.

John is single. He has adjusted gross income of $32,000 and itemized deductions of $3,400. John's taxable income is:

AGI $32,000 Standard deduction -6,300 Personal exemption -4,000 Taxable income $ 21,70

The tax formula for individuals contains the following:

Adjusted gross income minus deductions and minus exemptions is equal to taxable income.

On January 1, 1996, Donna bought a single family house to use as a rental. She paid $300,000 for the property and has claimed depreciation of $60,000 over the intervening years. She sells the house on January 1, 2014, for $400,000 incurring selling expense of $24,000. What is Donna's gain or loss?

Amount realized (selling price - selling expense) $376,000 Adjusted basis (cost - depreciation) -240,000 Gain $136,000

Taxpayers who are blind get the benefit of:

An additional amount added to their standard deduction.

George (70) and Martha (66) are married. They have gross income of $212,000 and do not itemize deductions. George and Martha:

Are not required to file. George and Martha are married and both are over age 65. Therefore, their standard deduction is $145,8100. They also claim two personal exemptions worth $7,9008,000. The total, $22,7003,100, is greater than their gross income, so they are not required to file.

For income tax purposes,

Both taxable and reporting entities must file tax returns to report their income. Feedback: Correct. Reporting entities such as partnerships report income which passes through to its owners, but pay no tax directly.

Clay purchased Elm Corporation stock 20 years ago for $10,000. In 2015, he sells the stock for $29,000. What is Clay's gain or loss?

Correct. ($29,000 - $10,000)

The 3.8 percent ACA Medicare surtax does not apply to:

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

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

Encouraging smaller families.

Andrea, 42, is divorced with one dependent child living at home. She has self-employment income as an author writing textbooks. She earns $50,000. Andrea files:

Form 1040. Andrea is required to file a return because her income exceeds the filing threshold for head of household ($13,2050). She is not eligible to file Form 1040EZ since she files as head of household and has a dependent. Form 1040A cannot be used because she has self-employment income in excess of $400. She must file Form 1040.

Amended individual returns are filed on:

Form 1040X

Adjusted gross income (AGI) is:

Gross income minus deductions for AGI.

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

Head of household

Barbara is divorced and pays 100 percent of the cost of maintaining a home for her 6 year old dependent daughter. Barbara should file_________ and her standard deduction is_____.

Head of household and $9,250

Joan, 45 years old and unmarried, contributed $1,200 monthly in 2015 to the support of her parents' household. The parents lived in an apartment rented by Joan and their income for 2015 consisted of $800 in interest. What is Joan's filing status and how many exemptions should she claim on her 2015 tax return?

Head of household and 3 exemptions

Rosalie is unmarried and provides all of the support for her mother who lives in a nearby nursing home. Rosalie should file:

Head of household with two exemptions.

Raymond owns two cars (for personal use), an investment portfolio with stocks and bonds, a house (which he lives in), and an online retail business that holds inventory.owns a business. In the business he has land, a building, two delivery vehicles, display cabinets, and inventory. Which of these business assets Which of these assets is not a capital asset?

Inventory

What is reported on Schedule A of Form 1040?

Itemized deductions.

Jack and Jill are married and have no dependent children. They are both over 65 and Jill is blind. Their gross income is $45,000 and they have $13,000 in itemized deductions. Their taxable income is:

Jack and Jill may increase their standard deduction of $12,600 by $3,750 (3 x $1,250) because they are both over 65 and Jill is blind. The total standard deduction of $16,350 is larger than their itemized deductions. Gross income $45,000 Standard deduction -16,350 Personal exemption -8,000 Taxable income $20,650

Janet is unmarried and provides 100 percent of the household expenses for herself and her dependent son. She has salary of $84,600, deductions for adjusted gross income of $5,000 and itemized deductions of $8,300. Janet's taxable income is:

Janet qualifies as head of household. The standard deduction for head of household is $9,250 which is more than her itemized deductions. Gross income $84,600 Deductions for AGI -5,000 Adjusted gross income 79,600 Standard deduction - 9,250 Exemptions -8,000 Taxable income $62,350

Which of the following types of income is subject to the Affordable Care Act (ACA) 3.8 percent Medicare surtax on net investment income?

Long-term capital gains.

Mary is 48 years old and in good health. She has two dependent children. Her husband died suddenly in 2014. She has gross income of $34,000, no deductions for adjusted gross income, and does not itemize deductions. Mary's taxable income for 2015 is:

Mary qualifies as a surviving spouse with dependent child. Therefore, she is entitled to a standard deduction of $12,600. She also claims her own personal exemption and two dependency exemptions for total exemption amounts of 3 x $4,000, or $12,000. Gross income $34,000 Standard deduction -12,600 Exemptions -12,000 Taxable income $9,400

A single taxpayer who earns $40,000 in wages, has $2,000 in interest from a bank, and does not itemize deductions:

May file Form 1040A. Feedback: Incorrect. This taxpayer may not file Form 1040EZ because his interest income is greater than $1,500. He is not required to file Form 1040 because his income is solely from wages and interest and he does not itemize deductions. His income is high enough to require filing and he may file Form 1040A.

Which of the following is true?

Old age and/or blindness increases your standard deduction.

Which of the following statements is not correct with respect to the taxation of capital gains?

Short-term capital gains have preferential tax rates.

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 $4,200 of wages from a part-time job at the college book store. What is Ann's filing status for 2015?

Single

The Affordable Care Act (ACA) imposes a 3.8% Medicare tax on:

The Affordable Care Act (ACA) imposes a 3.8% Medicare tax on:

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

The charitable deduction.

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 $4,000 of gross income in order to qualify.

Mark, 67, and Nina, 61, are married and have no dependent children. Their gross income is $50,000 and they have itemized deductions of $15,000. Their taxable income is:

Their itemized deductions are greater than the standard deduction of $13,650 ($12,400 plus the over 65 addition of $1,250). Gross income $50,000 Itemized deductions -15,000 Personal exemptions - 8,000 Taxable income $27,000

In which of the following situations is the taxpayer not required to file a 2015 income tax return?

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