tax chapter 8

109. Concerning the credit for child and dependent care I. If a taxpayer's adjusted gross income exceeds $43,000, the child and dependent care credit rate is reduced to 20%. II. No credit is allowed for expenses incurred outside the home. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

A

116. Arnold is single and has two children in college. Maureen is a sophomore, and Rick is a senior. Arnold pays $3,000 in tuition and fees for Maureen and $6,000 for her room and board. Rick's tuition and fees are $5,000, and his room and board expenses are $3,600. Arnold's adjusted gross income is $80,000. What amount can he claim as a higher education tax credit? a. $2,500 b. $3,250 c. $3,500 d. $4,750 e. $5,470

A

121. Canfield is single, 70 years old, and has no dependents. Canfield will not have to file a tax return in 2014 if: I. his gross income does not exceed $11,700. II. his only income is $4,000 of self-employment income. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

A

118. Reggie and Ramona are married and have two children in college. Jason is a sophomore, and Justine is a senior. They pay $2,500 in tuition and fees for Jason, $900 for his books and $3,000 for his room and board. Justine's tuition and fees are $5,000, her book expense is $800, and her room and board expenses are $2,600. Their adjusted gross income is $170,000. What amount can they claim as a tax credit for the higher education expenses she pays? a. $ -0- b. $2,425 c. $3,125 d. $3,638 e. $4,850

B

104. Darlene and Joseph are married and have two children ages 17 and 15. Their adjusted gross income for 2014 is $108,000. What amount can they claim for the child tax credit? a. $ - 0 - b. $ 600 c. $1,000 d. $1,200 e. $2,000

C

111. Which of the following individuals or couples qualify for the child and dependent-care credit? I. Lois is single and earns $45,000 for the year. She pays $2,600 in child-care costs for her 8- year-old daughter. II. Patrick and Carol are married and together they earn $67,000 ($42,000 and $25,000 respectively). They pay $5,000 in child-care costs for their twin boys, age 11. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

C

113. Larry is a single parent with an 11-year-old daughter. Larry's adjusted gross income is $27,000, and he pays $2,100 in qualified child-care expenses. Larry can claim a child and dependent-care credit of: a. $ 420 b. $ 441 c. $ 609 d. $ 735 e. $2,100

C

119. Carey and Corrine are married and have two children in college. Jason is a sophomore, and Justine is a senior. They pay $2,000 in tuition and fees for Jason, $600 for his books and $3,000 for his room and board. Justine's tuition and fees are $3,000, her book expense is $800, and her room and board expenses are $2,600. Their adjusted gross income is $165,000. What amount can they claim as a tax credit for the higher education expenses she pays? a. $ -0- b. $1,150 c. $3,450 d. $4,600 e. None of the above

C

120. Garcia is single, 65 years old, and has no dependents. Garcia will not have to file a tax return in 2014 if: I. his gross income does not exceed $11,700. II. his only income is $21,000 of social security benefits. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

C

19. To be a qualifying relative, an individual must meet certain tests. These tests include, I. the citizen or residency test. II. the gross income test. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

C

83. Smokey purchases undeveloped land in 1999 for $20,000. In the current year he contributes the property to the Camp Fire Girls of America to use as their summer camp. The fair market value of the land at the date of the contribution is $25,000. If Smokey's AGI is $100,000, what is his maximum deductible charitable contribution? a. $ 5,000 b. $20,000 c. $25,000 d. $30,000 e. $50,000

C

95. Shannon is 16 years old and is a qualified dependent of her mother. Shannon earns $1,500 as a counselor at a church summer camp and receives $2,500 of interest on a savings account established by her grandparents. Shannon's 2014 taxable income is: a. $ - 0 - b. $1,500 c. $2,150 d. $2,500 e. $2,950

C

117. Cory and Leslie are married and have two children in college. Jason is a sophomore, and Justine is a senior. They pay $2,500 in tuition and fees for Jason, $900 for his books and $3,000 for his room and board. Justine's tuition and fees are $5,000, her book expense is $800, and her room and board expenses are $2,600. Their adjusted gross income is $50,000. What amount can they claim as a tax credit for the higher education expenses she pays? a. $2,250 b. $3,125 c. $3,250 d. $3,540 e. $4,850

D

33. Lillian and Michael were divorced last year. Michael has custody of their two children. Lillian pays $8,600 in child support payments during the current year. The total cost of supporting the children is $12,500. Michael and Lillian do not have any special agreement about dependency exemptions. How many total exemptions may Michael claim for the current year? a. 0 b. 1 c. 2 d. 3 e. 4

D

36. Which of the following will prevent a couple from filing as married filing joint in 2014? I. One spouse dies on June 6, 2014. II. The couple is legally married, but is living apart throughout the year. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

D

37. In October of the current year, Brandy and her husband Ben split up and do not speak to each other. Neither individual will cooperate with the other on finalizing the divorce. Ben supports their two children after the split up and maintains their household. What is Ben's filing status for the current year? a. Single. b. Head of household. c. Surviving spouse. d. Married, filing separately.

D

38. Lilly and her husband Ben have a serious argument. In fact, Lilly moved out in August, left town, and has not been heard from since. Ben supports their two children after the split up and maintains their household. What is Ben's filing status for the current year? a. Single. b. Head of household. c. Surviving spouse. d. Married, filing separately.

D

21. To be a qualifying relative, an individual must meet certain tests. These tests include, I. the citizen or residency test. II. the non-support test. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

A

25. Sergio wants to know if he can claim his daughter, Sarah, as a dependent on his income tax return. Sarah lives at home with her parents all year. Sergio provides $11,500 for her support (i.e., food, shelter, and transportation). Sarah, age 18, made $13,250 last year by acting and working as a cashier at a restaurant. Sarah saved $9,000 of her income and spent $4,250 on clothes and entertainment. Can Sergio claim his daughter, Sarah, as a dependent for income tax purposes? a. Yes. b. No, Sarah fails the relationship test. c. No, Sarah fails the gross income test. d. No, Sarah fails the student test. e. No, Sarah fails the support test.

A

26. Kevin wants to know if he can claim his brother, Richard, as a qualifying relative for income tax purposes. Richard is 18 and is a part-time student at City Community College. He lives with Kevin in his home for the entire tax year. Kevin provides the majority of Richard's support. During the year Richard has the following items of income: State of Oklahoma bond interest $1,000 Dividends on General Motors stock $ 700 Employee wages from part-time work $2,900 Can Kevin claim his brother Richard as a dependent for income tax purposes? a. Yes. b. No, Richard fails the relationship test. c. No, Richard fails the gross income test. d. No, Richard fails the student test. e. No, Richard fails the residency test.

A

27. Which of the following individuals can be claimed as a dependent in the current year? (Assume any test not mentioned has been satisfied). Carl and Diane are divorced. Carl has custody of their 6-year-old son. Diane pays Carl I. II. $500 per month in child support. Carl pays the other $400 per month it costs to support their son. The divorce decree does not stipulate who gets custody of the son. Carl claims his son as a dependent. Lorraine is a 25-year-old college student. She lives with her parents, who also provide her with $500 monthly support. Lorraine earns $4,600 working part-time for other support. She may be claimed as a dependent of her parents. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

A

23. Rosa is a single parent who maintains a home in Durham in which she and her 16-year-old daughter reside. She also provides most of the support for her son, Carmelo, age 25, who is a full-time student at Duke Law School, lives at home, and earns $3,500 as a part-time waiter at a local diner. How many personal and dependency exemptions can Rosa claim? a. 0 b. 1 c. 2 d. 3

D

20. To be a qualifying relative, an individual must meet certain tests. These tests include, I. the gross income test. II. the age test. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

A

115. George and Kelly have their three children in daycare at an exclusive River Oaks pre-kindergarten center. They incur $20,000 in expenses to keep their children in daycare. George is a physician and Kelly is an assistant district attorney. Together their adjusted gross income is $450,000. What amount can they claim as a child-care credit? a. $ - 0 - b. $ 600 c. $1,200 d. $1,800 e. $4,000

C

103. Susan and Kyle are married and have two children ages 16 and 14. Their adjusted gross income for 2014 is $108,000. What amount can they claim for the child tax credit? a. $ - 0 - b. $ 600 c. $1,000 d. $1,200 e. $2,000

E

101. In which of the following circumstances will income of the child be taxed at the marginal tax rate of the child's parent? I. Nicole, age 17, has $4,000 of interest income from Microsoft bonds. II. Catherine, age 19, has $2,300 of royalty income from oil producing property. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

A

107. Which of the following individuals or couples qualify for the 2013 earned income credit? I. Dennis is single and 25 years old. He is a recent graduate of Holly Technical College. During the year, Dennis cannot find a full-time job, but makes $7,000 as a waiter. Matthew and Joan, are both 27, married, and have two children. Joan attends medical II. school while Matthew stays home with the children. Joan also works part-time at the hospital and earns $9,000. In addition, Joan inherits a substantial amount of money from her grandfather, which pays $5,000 of interest during the year. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

A

18. Ariel has two children, Christopher and Pat. Christopher is 25 years old and Pat is 22. Both are full time students at Southern College, have full tuition scholarships, and live at school during the year. Christopher graduated in June. Which test will prevent Ariel from claiming both Pat and Christopher as dependents? a. Age test. b. Gross income test. c. Principal residence test. d. Non-support test. e. Full time student test.

A

32. During the current year, his three children, Simon, Alvin, and Theodore and his life-long friend, Arlo, with whom he lives, provide Durbin's support. Durbin's support distribution follows: Simon 20% Theodore 55% Arlo 10% Alvin 15% If the children file a multiple support agreement, which of the following are eligible to claim Durban as a dependent? a. Only Theodore. b. Only Theodore or Arlo. c. Only Arlo. d. Theodore, Simon, or Alvin. e. Theodore, Simon, Arlo, or Alvin

A

60. Ricardo pays the following taxes during the year: Real estate taxes on his personal residence $2,500 Real estate taxes on rental property 2,000 State sales taxes 600 State income taxes 4,000 City income taxes 1,000 Federal income taxes 5,400 What is the amount Ricardo can deduct for taxes as an itemized deduction for the year? a. $ 7,500 b. $ 8,100 c. $ 9,500 d. $12,900 e. $15,500

A

63. Which of the following taxes is deductible from adjusted gross income when paid by an individual taxpayer? I. State income tax. II. State excise tax on gasoline. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

A

74. Linc, age 25, is single and makes an annual contribution to his church of $2,000. Linc always uses the standard deduction when filing his income tax return. Determine the amount of Linc's deduction for charitable contributions. a. $ - 0 - b. $ 200 c. $ 560 d. $1,000 e. $2,000

A

87. Julius is an employee of a large consulting firm. During the year he incurs the following expenses in his job, none of which are reimbursed by his employer. Julius's adjusted gross income is $100,000 before considering these expenses. Commuting between his home and office $3,000 Local travel to and from his office to visit clients $4,000 Local travel to and from his home to visit clients $3,000 Legitimate business entertainment of clients $8,000 Hotels accommodations while on business travel $3,000 Meals while away from home on business travel $2,000 Subscription fees for publications directly related to his employment $1,000 Cost of professional wardrobe $7,000 What is Julius's miscellaneous itemized deduction? a. $14,000 b. $16,000 c. $21,000 d. $22,000 e. None of the above

A

91. Barney's sailboat is destroyed in an unusual accident. The sailboat, which he used for personal purposes, caught fire forcing him and his friends to jump ship and swim for shore. The boat exploded and sank. Barney purchased the boat in 1998 for $75,000. At the time that it is destroyed, the boat has a value of $45,000. Barney's insurance company pays him $25,000 in full settlement of this loss. Barney's adjusted gross income is $60,000. If this is his only casualty loss during the year, what amount can he deduct as a casualty loss? a. $13,900 b. $14,000 c. $19,900 d. $44,900 e. None of the above.

A

92. Erin is 67, single and has an adjusted gross income of $14,300. She has no dependents and her itemized deductions are $6,000. What is her 2014 taxable income? a. $ 2,600 b. $ 3,350 c. $ 4,650 d. $ 4,750 e. $ 6,000

A

93. Orrill is single and has custody of his 8-year-old son Jack. Orrill has gross income of $46,000, deductions for adjusted gross income of $2,200 and itemized deductions of $6,000. What is his tax liability for 2014? a. $3,372 b. $4,039 c. $4,333 d. $4,431 e. $4,521

A

96. Children under 18 and full time students under 24 are taxed differently than other taxpayers if I. Their unearned income exceeds $2,000. II. Their parents' marginal tax rate exceeds 15%. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

A

99. During 2014, Marla earns $2,700 from a summer job. She also has interest income of $2,400. Marla, age 19, is a full-time student at Western College. Her parents claim her as a dependent. Their taxable income is $100,000. What is Marla's tax liability for 2014? a. $ 210 b. $ 265 c. $ 300 d. $ 450 e. $ 525

B

100. Velma is 16. Her income consists of municipal bond interest of $400 and interest credited to her savings account of $2,340. If her parent's taxable income is $88,000, what is Velma's 2014 tax liability? a. $139 b. $185 c. $224 d. $305 e. $448

B

108. Which of the following individuals or couples qualify for the 2013 earned income credit? I. Holly is single, 23 years old, and has just finished drama school. She earns $2,000 doing commercials and another $6,000 as a taxicab driver. II. Larry and Shari are both 30 years old. Larry works part-time and earns $6,000, and Shari, who is starting her own business, earns $9,000. They have one child. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

B

112. Which of the following individuals or couples qualify for the child and dependent-care credit? Jeff and Marion are married with 2 children ages 5 and 7. Jeff earns $57,000 and Marion is I.a part-time graduate student at the local university and also works as a volunteer for the local hospital. When Marion is in class or working as a volunteer, they hire their neighbor to care for the children. During the year they paid $1,200 to their neighbor. II. Michael is single and earns $75,000. Michael pays $10,000 for a nurse to help care for his father who is disabled and lives with him. Michael is entitled to the dependency exemption for his father. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

B

114. Rodrigo and Gwen are married and have 2 children. Gwen earns $65,000, and Rodrigo has a part-time job from which he earns $4,000 during the year. They pay $6,000 in qualified child-care expenses during the year. Rodrigo and Gwen can claim a child-care credit of: a. $ - 0 - b. $ 800 c. $1,200 d. $4,000 e. $6,000.

B

16. Alan is a 23-year old student at Upper State College. He earned $4,200 at a summer job. I. Because he earns over $3,950 his parents cannot claim him as a dependent on their return. II. Alan cannot claim a personal exemption for himself if his parents can claim him as a dependent. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

B

17. Mary Lou is a 22-year old student at Wilson College. She earned $4,300 at a summer job, which is less than half of her support. I. Mary Lou can claim a personal exemption for herself even if her parents claim her as a dependent. II. Because Mary Lou is a full-time college student, and she provides less than half of her own support, her parents must claim her as a dependent on their return. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

B

22. Larry and Louise are both 49 years of age and file a joint return. They provide all of the support for their son, Dylan, who is 20 years old and is at home until he gets called into the army. His income at part-time jobs is $3,900. Their daughter, Phyllis, is a 23-year-old full-time student at State University. She lived at school 9 months and provided two thirds of her own support with a summer job. How many personal and dependency exemptions can Larry and Louise claim on their income tax return? a. 1 b. 2 c. 3 d. 4

B

34. Simone and Fillmore were divorced last year. Fillmore has custody of their two children. Simone pays $9,600 in child support payments during the current year. The total cost of supporting the children is $12,500. Fillmore and Simone do not have any special agreement about dependency exemptions. How many total exemptions may Simone claim for the current year? a. 0 b. 1 c. 2 d. 3 e. 4

B

41. Tisha's husband died in 2011. She has not remarried and maintains a home for herself and her dependent son. What is Tisha's filing status for 2014? a. Single. b. Head of household. c. Married, filing separately. d. Surviving spouse.

B

45. Cory is a 32 years old, unmarried, and has no children. Cory's father lives in a nursing home. I. Because Cory's father does not live in the same household, Cory cannot file as a head of household. II. If his father's taxable income is less than $3,900 and the other dependency tests are met, Cory will file as head of household. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

B

48. Paul, age 40 and single, has an 8-year-old son, Larry. Larry resides with his mother, Susan, in her home. Pursuant to the terms of their divorce, Paul properly claims Larry as a dependent on his income tax return. Paul pays child support payments to his ex-wife for support of his child. Susan does not claim Larry as her dependent but she does bear the economic burden of supporting the household in which they reside. What is the maximum amount of the 2014 standard deduction that Susan qualifies for? a. $ 6,200 b. $ 9,100 c. $ 9,600 d. $12,400 e. Susan does not qualify to claim a standard deduction.

B

51. Which of the following qualify for the medical expense deduction? I. Over-the-counter cough medicine. II. Chiropractic treatments. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

B

52. Carlos incurs the following medical expenses during the current tax year: Surgeon's fees $2,000 Medical insurance premiums 600 Hospital fees 800 Prescription drugs 310 Wheel chair 200 Carlos's adjusted gross income for the year is $32,000. He receives a $500 reimbursement from his insurance company. Determine the amount of his medical expense deduction for the current year. a. $ - 0 - b. $ 210 c. $2,360 d. $2,400 e. $2,610

B

55. Lynnette is a single individual who receives a salary of $36,000. During 2014, she has $6,800 withheld for payment of her federal income taxes and $2,900 for her 2014 state income taxes. In 2015, she receives a $450 refund after filing her 2014 federal tax return and a $750 refund after filing her 2014 state tax return. I If Lynnette has total itemized deductions of $6,000 on her 2014 federal tax return, she must include the entire $750 refund in her 2015 gross income. II. If Lynnette uses the standard deduction in filing her 2014 federal income tax return, the $750 refund is not taxable in 2015. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

B

56. Anita receives a state income tax refund of $550 in May 2014. When she filed her 2013 federal income tax return, she used the standard deduction amount. Although the all-inclusive income concept would require Anita to report the $550 in her federal gross income for 2014, she may exclude it. What tax concept explains why the exclusion is permitted in this case? a. Wherewithal to pay. b. Tax benefit rule. c. Ability to pay. d. Assignment of income. e. Administrative convenience.

B

59. During the current year, Robbie and Anne pay the following taxes: State income tax (balance due for last year) $1,000 Estimated state income tax 2,400 Estimated federal income tax 3,250 Sales tax (Federal Sales tax table) 600 State gift tax 700 Property tax on personal residence 2,450 Real estate tax on condominium in Breckinridge, CO. 1,100 What amount can Robbie and Anne claim as an itemized deduction for taxes on their federal income tax return for the year? a. $ 5,850 b. $ 6,950 c. $ 7,550 d. $ 8,050 e. $11,300

B

61. Ronald pays the following taxes during the year: Real estate taxes on his personal residence $2,500 Real estate taxes on rental property 2,000 State sales taxes (from Federal Sales tax table) 1,400 State income taxes 1,000 Federal income taxes 5,400 What is the amount Ronald can deduct for taxes as an itemized deduction for the year? a. $ 3,500 b. $ 3,900 c. $ 4,900 d. $ 6,900 e. $12,300

B

68. Debra and Ken refinance their personal residence on July 1, 2014. They borrow $96,000 over a 20-year period and paid points of $1,920. For 2014, what amount of the points is deductible? a. $ - 0 - b. $ 48 c. $ 96 d. $ 480 e. $ 960

B

73. Randolph borrows $100,000 from his uncle's bank and invests the proceeds in various corporate bonds. He pays $9,000 in interest on the loan during the current year. The bonds produce $7,200 of interest income. Randolph reports adjusted gross income of $100,000 in the current year. If the interest income is his only investment income, how much of the interest expense is deductible by Randolph? a. $7,000 b. $7,200 c. $9,000 d. None of this interest is deductible.

B

75. Louise makes the following contributions during the current year: Purchase of raffle ticket from church $ 50 Cash given to church 200 Chamber of Commerce dues 500 Stock acquired in 2003 donated to State University (Cost = $1,000; FMV = $1,800) Clothing donated to Goodwill (Cost = $800; FMV = $200) Volunteer work at local hospital: (Candy-striper uniform @ $40) If Louise's gross income is $35,000, what is her allowable charitable contribution? a. $ 1,440 b. $ 2,240 c. $ 2,290 d. $ 2,790 e. $ 2,840

B

77. Homer has AGI of $41,500, and makes the following donations in the current year: • $1,000 cash to the United Way. • 100 hours contributed to the Red Cross to help flood victims (Homer's normal billing rate is $40 per hour in his consulting business). • 15 old dress shirts to Goodwill Industries, (original cost $300; fair market value $60). • $1,000 cash to an old friend, Sam, to help cover his medical bills What is Homer's charitable contribution deduction for the current year? a. $1,000- b. $1,060 c. $1,300 d. $2,060 e. $6,300

B

80. Which of the following properties from an income tax standpoint will be the best one for Juan to contribute to his favorite charity? a. Stock acquired in 1992, basis = $13,000, FMV = $10,000. b. Stock acquired in 1996, basis = $7,000, FMV = $10,000. c. Inventory items acquired in 2004, basis = $8,000, FMV = $10,000. d. Inventory items acquired in 2010, basis = $18,000, FMV = $10,000. e. Juan should be indifferent between giving any of the above properties from an income tax standpoint because they each have the same fair market value.

B

86. Moran pays the following expenses during the current year: Subscription to Time magazine $ 80 Dues paid to professional organizations 300 Attorney's fee for tax advice related to his divorce 200 Life insurance premiums 600 Valid business entertainment 500 Fees for investment advise to acquire taxable securities 300 If Moran itemizes his deductions and his adjusted gross income is $35,000, what is his allowable deduction for the above expenses? a. $ - 0 - b. $ 350 c. $ 700 d. $1,050 e. $1,300

B

89. Cecelia is a loan officer for The Hibernia Street Bank. Her adjusted gross income for the current year is $85,000.Cecelia incurs the following unreimbursed expenses during the current year: Dues to loan officer association $ 520 Subscriptions to professional journals 475 Parking at work 2,260 Entertaining clients 850 Business clothes 1,400 Tax return preparation fee 950 Legal fees related to tax issue on a prior year tax return 1,650 Safe deposit box rental 80 Investment fees 640 What is Cecelia's allowable miscellaneous itemized deduction? a. $1,390 b. $3,040 c. $4,740 d. $7,265 e. $8,965

B

94. Susan is 17 and is claimed as a dependent by her parents. In 2014, she earns $1,000 from a summer job and receives $2,400 of interest from a savings account. How much of Susan's income is taxable at her parents' marginal rate? a. $ - 0 - b. $ 400 c. $2,000 d. $2,400

B

97. Robbie is 18, and a dependent on his parent's return. His income consists of interest of $1,300, and $2,500 from being a lifeguard. If his parent's taxable income is $75,000, what is Robbie's 2014 tax liability? a. $ -0- b. $ 95 c. $130 d. $250 e. $295

B

98. During 2014, Stephanie earns $2,700 from a summer job. She also has interest income of $400. Stephanie, age 19, is a full-time student at Omega College. Her parents claim her as a dependent. What is the amount of Stephanie's taxable income for 2014? a. $ - 0 - b. $ 50 c. $ 400 d. $2,150 e. $2,700

B

28. Which of the following individuals can be claimed as a dependent in the current year? (Assume any test not mentioned has been satisfied). Kelly's mother, Dana, lives with her for 10 of 12 months during the year. Kelly provides all I. II. the support for Dana during that time. The other two months were spent with Dana's other daughter, Alice. Dana's annual income consists of $12,750 in Social Security and $1,850 of savings account interest. Kelly may claim Dana as a dependent. Bart is a 22-year-old college student. His tuition of $7,000 is paid by a scholarship he received for his good high school record. He lives with his parents, who also provide him with $450 monthly support. Bart earns $1,950 mowing lawns in the neighborhood for other support. He may be claimed as a dependent of his parents. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

C

29. For purposes of the relationship test for dependents, which of the following does not qualify as a relative? a. Mother. b. Nephew. c. Cousin. d. Grandfather. e. Stepbrother.

C

35. Thomas has adjusted gross income of $228,000, total itemized deductions of $39,000 and claims 2 personal and 2 dependency exemptions. Which is his filing status? a. Single. b. Head of household. c. Married filing a joint return. d. Married filing separately.

C

46. Michael, age 42 and single, has a 13-year-old son, Tony. Tony resides with his mother, Jennifer, in her home. Pursuant to the terms of their divorce, Michael properly claims Tony as a dependent on his income tax return. Michael pays child support payments to his ex-wife for support of his child. Jennifer does not claim Tony as her dependent but she does bear the economic burden of supporting the household in which they reside. What is the maximum amount of the 2014 standard deduction that Michael qualifies for? a. $ 6,100 b. $12,200 c. $ 8,950 d. $ 5,000

C

49. Samantha incurs the following medical expenses for the current year: Face-lift for cosmetic purposes $800 Dentist fees 500 Doctors' fees for Samantha's daughter 400 How much may Samantha include as qualified medical expenses on her current tax return before any limitation? a. $ 400 b. $ 500 c. $ 900 d. $1,300 e. $1,700

C

50. Which of the following qualify for the medical expense deduction? I. Insulin. II. Medicare insurance premiums. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

C

53. Marci is single and her adjusted gross income is $30,000. In addition, she pays the following expenses during the year: Psychiatrist's fee $ 800 Hospital bill for medical services and room 1,800 Transportation to/from hospital 100 Prescription drugs 750 Over-the-counter vitamins 200 Chiropractor's fees 700 Marci pays $600 for medical insurance premiums and receives a reimbursement of $1,000 from the insurance company for her medical expenses. Compute her medical deduction. a. $ - 0 - b. $ 550 c. $ 750 d. $ 1,250 e. $ 1,450

C

54. Randy is a single individual who receives a salary of $30,000. During 2014, he has $7,000 withheld for payment of his federal income taxes and $2,500 for his state income taxes. In 2014, he receives a $400 refund after filing his 2014 federal tax return and a $50 refund after filing his state tax return. I. Randy is allowed a deduction for the $2,500 of state taxes withheld from his salary on his 2014 federal tax return. II. If Randy has total itemized deductions of $6,250 on his 2013 federal tax return, he must include the $50 state tax refund in his 2014 gross income. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

C

62. Which of the following taxes is deductible from adjusted gross income when paid by an individual taxpayer? I. State income tax. II. Property tax on property owned in Alberta, Canada. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

C

64. Gerald purchases a new home on June 30, 2014. During January 2015, he receives his real estate tax statement for calendar year 2014 showing $1,800 payable. Gerald pays the $1,800 on March 1, 2015. The seller of the residence had credited Gerald with $900 of the 2014 taxes on the closing statement. What is the amount of real estate taxes that Gerald may claim as an itemized deduction in 2015? a. $ - 0 - b. $ 450 c. $ 900 d. $1,800 e. $2,700

C

65. Hank, whose adjusted gross income is $100,000, purchases a new principal residence in the current year for $250,000. He borrows $220,000 from a local mortgage company and pays loan origination fees of $1,600 and mortgage insurance premiums of $1,500. During the year, Hank pays $7,000 of interest on the loan. What is Hank's allowable interest deduction for the year? a. $ 7,000 b. $ 7,750 c. $ 8,500 d. $ 8,600 e. $10,100

C

70. Certain interest expense can be carried forward if not deductible in the current year. Which of the following types of interest can be carried forward and deducted in a future year? a. Credit card interest. b. Personal car loan interest. c. Interest on a loan to buy common stock. d. Home equity loan interest.

C

71. Brock incurs $950 interest on his GMAC auto loan, $150 interest on a loan with Computer Express to buy a multi- media equipped computer (personal use), $500 interest on his credit cards, and $1,000 investment interest. Brock's net investment income is $650. Brock's deductible interest amount is a. $ - 0 - b. $ 350 c. $ 650 d. $1,000 e. $1,600

C

79. Linda's personal records for the current year show the following facts: • Pays $11,000 to St. John's Church. $4,000 is for her daughter's tuition in the church's middle school and she contributes the balance when she attends church. • Linda has diabetes and gives $800 to the American Diabetes Association in hopes that she will benefit from a cure • Pays $300 in annual dues to the Moose Lodge. • National Airways, Inc., common stock with a fair market value of $2,000 to the March of Dimes. The stock was purchased 4 years ago for $3,000. Linda's AGI for the current year is $32,000. What is her charitable contribution deduction? a. $ 7,000 b. $ 9,000 c. $ 9,800 d. $10,800 e. $13,800

C

81. Dorchester purchased investment realty in 1991 for $25,000. During the current year he contributes it to the American Heart Association to use as the site for its new local headquarters. The realty has a value of $52,000 on the contribution date, and Dorchester's AGI is $100,000. Dorchester's maximum current year contribution deduction is a. $ - 0 - b. $ 25,000 c. $ 30,000 d. $ 50,000 e. $ 52,000

C

82. Patricia contributes artwork to the art museum at Tech University. Her AGI is $50,000. She paid $10,000 for the artwork in 1987, but its fair market value at the contribution date is $30,000. What is Patricia's maximum current year charitable deduction? a. $ - 0 - b. $10,000 c. $15,000 d. $25,000 e. $30,000

C

84. In 2005, Victor acquires an Andy Warhol painting for $32,000. During the current year he donates the painting to the city museum. Its fair market value at the date of the contribution is $38,000. If Victor's adjusted gross income is $66,000 and he elects to reduce the contribution to its basis, his deductible contribution is a. $18,000 b. $19,800 c. $32,000 d. $33,000 e. $38,000

C

102. In which of the following circumstances will income of the child be taxed at the marginal tax rate of the child's parent? I. Martin, age 6, earns $14,000 this year by acting in television commercials. II. Allen, age 22 and a full time college student, has $4,000 of interest income on municipal bonds that he inherited from his grandfather last year. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

D

105. Jerry and Lana are married and have two children ages 12 and 10. Their adjusted gross income for 2014 is $124,000. What amount can they claim for the child tax credit? a. $ 200 b. $ 800 c. $1,000 d. $1,300 e. $2,000

D

106. Howard is single and has a son age 15. Howard's adjusted gross income for 2014 is $80,000. What amount can he claim for the child tax credit? a. $- 0 - b. $ 250 c. $ 350 d. $ 750 e. $1,000

D

110. Concerning the credit for child and dependent care I. If a taxpayer's adjusted gross income does not exceed $43,000, the child and dependent care credit rate is 30%. II. Expenditures qualifying for credit can exceed the earned income of the taxpayer. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

D

24. Will and Brenda of New York City are both age 66 and always file a joint tax return. During the current year they provide all the support for their son who is 20, has no income, and is a part-time college student. Their daughter, age 22 and a full-time student at Columbia University, has $4,800 of income. What is the total number of personal and dependency exemptions Will and Brenda can claim? a. 1 b. 2 c. 3 d. 4

D

31. Brandon is retired and lives with his son, Charles. Charles and his sister and brother, Heloise and Barney, provide Brandon's total support: Charles $7,000 Heloise 4,000 Barney 2,000 Social Security 7,500 If the children file a multiple support agreement, which of the children are eligible to claim Bramdon as a dependent? a. None. b. Only Charles. c. Only Heloise. d. Only Charles and Heloise. e. Charles, Heloise, or Barney.

D

39. Norton's spouse died in 2014. Norton has one child, age 7, living at home. Norton provides all of the support for the child. The child lives with Norton during 2014, 2015, 2016, and 2017 Norton's most advantageous filing status is a. Married filing jointly in 2014, single in 2015, 2016, 2017. b. Head of household for all four years. c. Head of household in 2014, surviving spouse in 2015, 2016, 2017. d. Married filing jointly in 2014, surviving spouse in 2015 and 2016, head of household in 2017.

D

40. Frank's wife died in 2012. He has not remarried and maintains a home for himself and his dependent daughter. What is Frank's filing status for 2014? a. Single. b. Head of household. c. Married, filing separately. d. Surviving spouse.

D

42. Julian and Judy divorced and Julian received custody of their child. Judy must pay child support of $24,000 annually. Therefore, Julian agreed in writing to allow Judy to claim the dependency exemption for the child. Julian maintains a home for himself and the child. For the current year, Julian's filing status and total exemptions claimed are a. Single and one exemption. b. Single and two exemptions. c. Head of household and two exemptions. d. Head of household and one exemption.

D

43. Georgia is unmarried and maintains a home in which she and her unmarried daughter Karla age 34, live. Karla is an engineer and earns $52,000 annually. Karla had some severe financial difficulties two years ago and Georgia has been helping her out ever since. Georgia's spouse died in 2013. What is Georgia's filing status for 2014? a. Head of household b. Surviving spouse c. Married, filing jointly d. Single e. Married, filing separately

D

44. Irene is 47 years old, unmarried, and has no children. Irene's mother lives in a nursing home. I. Irene can file as head of household because her mother lives in a nursing home. II. Because Irene's mother is a lineal descendent, Irene automatically qualifies for head of household status. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.

D

57. Morris is a single individual who has total itemized deductions in 2014 of $6,150. His itemized deductions include $2,000 for state income taxes. After filing his 2014 state income tax return he receives a refund of $275. a. Morris must include $275 as income on his 2015 federal income tax return. b. Morris must amend his 2014 federal tax return to reflect state income taxes of $1,725 ($2,000 - $275). c. If Morris itemizes his tax return in 2015 he must reduce his state tax deduction by $275. d. Morris must include $200 as income on his 2015 federal income tax return. e. Morris does not have to report any of the state income tax refund on his 2015 tax return.

D

58. Richard pays his license plate fee for his car in July of the current year. Of the $400 he paid $10 represented a registration fee, $140 represented a charge based on the weight of the car, and a $200 charge based on the value of the car. How much of the $400 can Richard deduct on his current-year tax return? a. $- 0 - b. $ 60 c. $140 d. $200 e. $400

D

66. Wayne purchases a new home during the year, borrowing $725,000 from Century National Bank to finance the purchase. He also pays $7,250 in points and $4,500 in loan origination fees. During the year he pays interest of $71,000 on the loan. What is Wayne's allowable interest deduction? a. $ - 0 - b. $ 7,250 c. $71,000 d. $78,250 e. $82,750

D

67. Baylen, whose adjusted gross income is $60,000, purchases a new home during the year, borrowing $300,000 from Century National Bank to finance the purchase. He also pays $3,000 in points $4,500 in loan origination fees and $1,800 mortgage insurance premiums. During the year he pays interest of $14,000 on the loan. What is Baylen's allowable interest deduction? a. $14,000 b. $15,800 c. $17,000 d. $18,800 e. $23,300

D

69. Carlyle purchases a new personal residence for $230,000. He makes a down payment of $30,000 and finances the balance at a very favorable interest rate. To obtain the favorable rate, points equal to 3% of the loan balance are paid at the closing. What amount of the points can Carlyle deduct in the current year? a. $ - 0 - b. $ 3,000 c. $ 4,000 d. $ 6,000 e. $ 6,600

D

72. Bender borrows $200,000 from his uncle's bank and invests the proceeds in various common stocks. He pays $9,000 in interest on the loan during the current year. The stocks produce $7,200 of dividend income, all taxed at the rate of 15%. Bender reports adjusted gross income of $100,000 in the current year. If the dividend income is his only investment income, how much of the interest expense is deductible by Bender? a. $7,000 b. $7,200 c. $9,000 d. None of this interest is deductible.

D

76. Armando has AGI of $80,000 and makes the following charitable contributions: • $10,000 cash to American Heart Society. • $ 8,000 cash to Redemption Church. • $24,000 worth of AOL stock acquired in 2005 with a basis of $10,000 to Upper State University. What is Armando's maximum charitable deduction in the current year? a. $18,000 b. $24,000 c. $28,000 d. $40,000 e. $42,000

D

78. Kristin has AGI of $120,000 in 2013 and 2014. She makes cash contributions to the American Cancer Society of $63,000 in 2013 and $65,000 in 2014. Kristin's charitable contribution carryover from 2014 is: a. $ - 0 - b. $ 3,000 c. $ 5,000 d. $ 8,000 e. $34,000

D

85. Hugh donates investment real estate to Habitat for Humanity. The property cost him $10,000 six years ago. The fair market value of the property at the date of the contribution is $18,000. Hugh's AGI is $80,000. What is the maximum amount Hugh can deduct as a charitable contribution? a. $ - 0 - b. $ 5,000 c. $10,000 d. $18,000 e. $24,000

D

88. Toby, a single taxpayer with no dependents, is an employee of a large consulting firm. During the year he incurs the following business expenses that are not reimbursed by his employer: Business entertainment and other meals $3,400 Transportation and lodging 4,200 Toby's AGI is $100,000 and is in the 28% marginal tax rate. In addition to the expenditures described above, his only other qualified itemized deductions are home mortgage interest of $6,000 and property taxes of $2,000. What is the after-tax cost to Toby of his unreimbursed employee business expenses? a. $ - 0 - b. $5,600 c. $6,088 d. $6,508 e. $7,600

D

90. Sophia, single, is a employee of JWH Consulting Company. She incurs $5,000 of valid entertaining expenses for which she receives no reimbursement. How much would she benefit from being reimbursed by JWH rather than deducting the expenses on her tax return? Her annual salary is $100,000, and she has other itemized deductions of $6,000. a. $3,600 b. $4,160 c. $4,720 d. $4,860 e. $5,000

D

30. Art is supported entirely by his 3 children who provide for his support as follows: Allie 48% Barney 42% Carrie 10% If the children file a multiple support agreement, which of the children will be eligible to claim Kenneth as a dependent? a. None. b. Only Allie. c. Only Barney. d. Only Allie or Barney. e. Either Allie, Barney, or Carrie.

E

47. Bruce, 65, supports his mother who lives with him. What is the maximum amount of the 2014 standard deduction that Bruce qualifies for? a. $ 6,200 b. $ 8,700 c. $ 9,100 d. $10,200 e. $10,650

E