Federal Taxation Homework 2

In 2023, Brett and Lashana (both 50 years old) file a joint tax return claiming as a dependent their son who is blind. Their standard deduction is a. 27,700 b. 29,200 c. 29,550 d. 15,700

a. 27,700 Explanation: Blindness of a dependent does not increase the standard deduction of the taxpayers.

Annisa, who is 28 and single, has adjusted gross income of $55,000, itemized deductions of $5,000 (comprised of state income taxes) and a lifetime learning credit of $1,000. In 2023, Annisa will have taxable income of a. 41,150 b. 54,000 c. 50,000 d. 49,000

a. 41,150 Explanation: (AGI - Standard Deduction = Taxable Income) = (55,000 - 13,850 = 41,150)

In 2023, the standard deduction for a married taxpayer filing a joint return and who is 67 years old with a spouse who is 65 years old is a. 29,200 b. 31,400 c. 30,700 d. 27,700

c. 30,700 Explanation: ($30,700 = $27,700 + $1,500 + $1,500)

True or False? Suri, age 8, is a dependent of her parents and has unearned income of $6,000. She must file her own tax return.

Explanation: A dependent earning solely unearned income not exceeding $12,500 in 2023 may report unearned income on the parents' return.

True or False? A single taxpayer has $85,000 of AGI in 2023. Her qualifying deductions are comprised of $4,500 of state income taxes and $800 of charitable contributions. The taxpayer will report $79,700 of taxable income in 2023

False Explanation: Because the taxpayer's itemized deductions are less than the standard deduction, she will reduce her AGI by the $13,850 standard deduction. Her taxable income will be $85,000 - $13,850 = $71,150.

True or False? Tax returns from individual taxpayers and partnerships are due on the 15th day of the fourth month following the close of the tax year.

False Explanation: Individual returns are due on the 15th day of the fourth month following the close of the tax year, but partnership tax returns are due the 15th day of the third month.

True or False? The requirement to file a tax return is based on the individual's adjusted gross income.

False Explanation: The requirement to file is based on the individual's gross income.

True or False? The standard deduction is the maximum amount of itemized deductions which may be claimed by a taxpayer and is based on an individual's filing status, age, and vision.

False Explanation: The standard deduction, set by Congress, is not directly related to itemized deductions. It is the alternative to itemized deductions.

True or False? Refundable tax credits are allowed to reduce or totally eliminate a taxpayer's tax liability but any credits in excess of the tax liability are lost.

False Explanation: Refundable tax credits may reduce the tax liability to zero and, if some credit still remains, are refundable or paid by the government to the taxpayer.

True or False? A widow or widower whose spouse passed away in the current year may file a joint tax return as long as the widow or widower does not remarry before the end of the year

True Explanation: A joint return may be filed in the year of death.

True or False? A $10,000 gain earned on stock held 13 months is taxed in a more favorable manner than a $10,000 gain earned on stock held 11 months.

True Explanation: Lower tax rates apply to long-term capital gains

True or False? Generally, itemized deductions are personal expenses specifically allowed by the tax law.

True Explanation: Personal expenses are not allowed as deductions unless specifically provided in the tax law.

True or False? The term "gross income" means the total of all income from any source, but after reduction for exclusions.

True Explanation: The tax law includes all sources of income in gross income unless specifically excluded

True or False? For purposes of the dependency exemption, a qualifying child must be under age 19, a full-time student under age 24, or a permanently and totally disabled child.

True Explanation: Two primary considerations for qualifying child status are age and full-time student status. In addition, an otherwise eligible individual may qualify.

If an individual with a taxable income of $15,000 has a long-term capital gain in 2023, it is taxed at a. 0% b. 20% c. 10% d. 15%

a. 0 % Explanation: Taxpayers with taxable income of $44,625 or less will have a 0% tax rate on long-term capital gains.

David's father is retired and receives $14,000 per year in Social Security benefits. David's father saves $4,000 of the benefits and spends the remaining $10,000 for his support. How much support must David provide for his father to meet the dependent support requirement? a. 10,000 b. 10,001 c. 14,000 d. 14,001

b. 10,001 Explanation: The amount that David's father saves is not counted in the support test. Therefore, David need only provide $1 more than his father ($10,000 + $1) to meet the more than 50 percent test.

The child tax credit is for taxpayers with dependent children under the age of a. 14 b. 17 c. 19 d. 24

b. 17 Explanation: Children must be under age 17 to qualify.

Sarah, who is single, maintains a home in which she, her 15-year-old brother, and her 21-year-old niece live. Sarah provides the majority of the support for her brother, her niece, and her cousin, age 18, who is enrolled full-time at the university and lives in an apartment. While the niece and cousin have no income, her brother has a part-time job and earns $4,500 per year. How many dependents may Sarah claim? a. 1 b. 2 c. 3 d. 0

b. 2 Explanation: Sarah may claim her niece and brother as dependents. Because her brother qualifies as her qualifying child for purposes of the dependency exemption, he does not have to meet the gross income test. Sarah may not claim her cousin as a dependent since her cousin does not live with her.

Ava reports income from a sole proprietorship and interest earned on savings accounts. In addition to the Form 1040, she will need to file a. Form 1099. b. Schedule 1. c. Schedule 2. d. none of the above.

b. Schedule 1 Explanation: Income from sole proprietorships is reported on Schedule 1.

Tom and Alice were married on December 31 of last year. What is their filing status for last year? a. They file as single. b. They file as married filing jointly or married filing separately. c. They file as single for half the year and married filing jointly for the other half. d. They file as single for 364 days and married filing jointly for one day.

b. They file as married filing jointly or married filing separately. Explanation: Marital status is determined as of the last day of the tax year. If the couple was married on December 31, they are considered married for the entire year and may file either married filing jointly or married filing separately.

John supports Kevin, his cousin, who lived with him throughout 2023. John also supports three other individuals who do not live with him: Donna, who is John's mother Melissa, who John's stepsister Morris, who is John's cousin Assume that Donna, Melissa, Morris, and Kevin each earn less than $4,700. How many dependents can John claim? a. 1 b. 2 c. 3 d. 4

c. 3 Explanation: John can claim three dependents—Kevin, Donna, and Melissa. Morris is John's cousin and does not qualify as a dependent since he doesn't live in John's home. A cousin is not related for tax purposes and would have to live in the taxpayer's home to be claimed as a dependent.

Nate and Nikki have two dependent children ages 12 and 15. Their modified AGI is $410,000. What is the amount of the child tax credit to which they are entitled? a. 0 b. 500 c. 3,500 d. 4,000

c. 3,500 Explanation: The child tax credit before the phase-out is $4,000 (2 × $2,000). They have excess AGI of $10,000 ($410,000 - $400,000). Their credit should be reduced by 10 ($10,000/$1,000) × $50 = $500. Thus, their child credit is $3,500.

Dave, age 59 and divorced, is the sole support of his mother age 83, who is a resident of a local nursing home for the entire year. Dave's mother had no income for the year. Dave's filing status is a. married filing separately. b. single. c. head of household. d. married filing jointly.

c. Head of Household Explanation: Dave's mother qualifies as his dependent. He qualifies as head of household since a taxpayer with a dependent parent qualifies even if the parent does not live with the taxpayer.

Form 4868, a six-month extension of time to file, allows a taxpayer to a. avoid interest on underpayment of taxes due. b. extend the filing date of the return as well as payment of the tax due. c. extend the filing date of the return but the estimated amount of tax due must still be paid by the original due date of the return. d. extend the filing date only at the discretion of the IRS.

c. extend the filing date of the return but the estimated amount of tax due must still be paid by the original due date of the return. Explanation: An extension to file a return is not an extension to pay any tax that is owed.

Which of the following dependent relatives does not have to live in the same household as the taxpayer who is claiming head of household filing status? a. uncle b. brother c. father d. nephew

c. father Explanation: A taxpayer with a dependent parent qualifies as head of household even if the parent does not live with the taxpayer.

If a single taxpayer has taxable income of $100,000 in 2023, resulting in a marginal tax rate of 24%. If she sells stock that results in a long-term capital gain, it will be taxed at a. 0% b. 20% c. 10% d. 15%

d. 15% Explanation: Single taxpayers with taxable income exceeding $44,625 but less than $492,301 will have a 15% tax rate on long-term capital gains.

Taquin, age 67 and single, paid home mortgage interest of $7,000, charitable contributions of $5,000 and property taxes of $4,000 in 2023. He has no dependents. Taquin will claim a deduction from AGI of a. 15,700 b. 18,850 c. 16,400 d. 16,000

d. 16,000 Explanation: The $1,850 deduction supplement for age or blindness only increases the standard deduction amount, not the itemized deductions allowed. In this case the increased standard deduction of $15,700 ($13,850 + $1,850) is less than the total itemized deductions of $16,000.

A single taxpayer provided the following information for 2023: Salary: $80,000 Interest on local government bonds (qualifies as a tax exclusion): 4,000 Allowable itemized deductions: 15,000 What is the taxable income? a. 69,000 b. 66,150 c. 80,000 d. 65,000

d. 65,000 Explanation: $80,000 - $15,000 itemized deductions = $65,000

Charlie is claimed as a dependent by his parents in 2023. He received $8,000 during the year from a part-time acting job, which was his only income. What is his standard deduction? a. 1,250 b. 13,850 c. 8,000 d. 8,400

d. 8,400 Explanation: For a dependent, the standard deduction is the greater of earned income plus $400 or $1,250, but no more than the current year regular standard deduction amount

All of the following items are deductions for adjusted gross income except a. contributions to health savings accounts. b. trade or business expenses. c. rent and royalty expenses. d. state and local income taxes.

d. state and local income taxes Explanation: State and local income taxes are itemized deductions.