AC371 Exam 1 (Chapter 4)

Deductible capital losses can offset capital gains. If the losses exceed the gains, then a maximum of ___________ may be used to offset ordinary income in any one year.

$3000

Which of the following items are deductions FOR adjusted gross income?

- contributions to qualified retirement accounts - alimony - capital losses - health insurance for self-employed persons

Which of the following expenses are classified as itemized deductions for tax purposes?

- state and local income taxes - medical and dental expenses - gambling losses - mortgage interest expense - charitable contributions

Which of the following assets are classified as capital assets?

- stock held for investment - a house owned and used by a taxpayer

Which of the following choices describe tax deductions?

- tax deductions are a matter of legislative grace - taxpayers are not allowed to deduct anything unless a specific tax provision allows them to do so

Which of the following examples results in realized income?

A taxpayer sold stock for $1000. She had originally paid $300 for the stock.

Individual Income Tax Formula

Gross Income Minus FOR AGI Deductions Equals Adjusted Gross Income Minus FROM AGI Deductions Equals Taxable Income Times Tax Rates Equals Income Tax Liability Plus Other Taxes Equals Total Tax Minus Credits Mius Prepayments Equals Taxes DUe (or refund)

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

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

All sources of income are taxable unless specifically excluded through a tax provision. Deductions, however, are not permitted unless a specific tax provision allows them. Deductions are a matter of ____________________.

legislative grace

A _______-term capital gain is taxed at favorable rates compared to ordinary income, while a ______-term capital gain is taxed at ordinary income rates.

long, short

Which filing status is allowed the highest standard deduction amount?

married filing jointly

Which filing status is used if one spouse dies during the year and the surviving spouse does remarry before the end of the year?

married filing jointly(separately)

Income that is taxed in the current year according to the tax rate schedule is referred to as _____________ income

ordinary

Income included in gross income in the current year and taxed at ordinary rates per the tax rate schedules

ordinary income

The category of exemption deductions allowed for the taxpayer and the taxpayer's spouse are referred to as __________ exemptions. The deductions the taxpayer is allowed to take for other persons he is supporting is called __________ exemptions.

personal, dependency

Examples of 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 years tax liability

prepayments

A taxpayer may file as a single taxpayer when

she is unmarried at the end of the tax year

Which two filing statuses have the same standard deduction amount?

single and married filing separately

What are the filing statuses that may be used by a taxpayer?

single, married filing jointly, married filing separately, widow/widower, head of houehold

Which of the following statements is correct?

stock which has appreciated in value must be sold before it is considered part of gross income

Income realized during the year that is not included in gross income until a later year

tax-deferred

Income realized during the year that is excluded from gross income and never taxed

tax-exempt

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

1. married filing jointly 2. head of household 3. single

What qualifies under "Other Tax"?

alternative minimum tax and self-employment tax

Gains (or losses) on investment or personal use assets that may be taxed at favorable rates

capital

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

deduction, credit

Realized income items that taxpayers permanently omit from income are referred to as ____________, while items that are taxed in a subsequent year are called ____________.

exclusions, deferrals

Expenses such as alimony paid for divorces, student loan interest, contributions to qualifying retirement accounts, and business expenses for self employed person are deductions _________ AGI.

for

Deductions _______ AGI cause a reduction in AGI, which increases the deductibility of _______ AGI deductions subject to AGI limitations.

for, from

The all-inclusive concept means that _____________ generally includes all realized income from whatever source derived.

gross income