Federal Income Tax Ch4 Practice

Madison's gross tax liability is $9,000. Madison had $3,000 of tax credits available and she had $8,000 of taxes withheld by her employer. What is Madison's taxes due (or taxes refunded) with her tax return? -$0 taxes due and $0 tax refund. -$6,000 taxes due. -$2,000 tax refund. -$1,000 taxes due.

$2,000 tax refund. Gross tax liability minus credits minus payments equals tax refund ($9,000 − 3,000 − 8,000 = $2,000 tax refund).

Lebron received $50,000 of compensation from his employer and he received $400 of interest from a municipal bond. What is the amount of Lebron's gross income from these items? $0. $400. $50,000. $50,400.

$50,000. $50,000 compensation. The interest income is excluded from gross income because it is interest from a municipal (tax exempt) bond.

Joanna received $60,000 compensation from her employer, the value of her stock in ABC company appreciated by $5,000 during the year (but she did not sell any of the stock), she received $30,000 of life insurance proceeds from the death of her husband. What is the amount of Joanna's gross income from these items? $60,000. $65,000. $95,000. $90,000.

$60,000. $60,000 compensation is included in gross income, the increase in the value of her stock is not realized income so it is not included in gross income, and the life insurance proceeds are excluded from gross income.

The income tax base for an individual tax return is: -Realized income from whatever source derived. -Gross income. -Adjusted gross income. -Adjusted gross income minus from AGI deductions.

Adjusted gross income minus from AGI deductions.

Which of the following is not an itemized deduction? -Alimony paid. -Medical expenses. -Real estate taxes. -Charitable contributions.

Alimony paid.

Which of the following statements regarding exclusions and/or deferrals is false? -Exclusions are favorable because taxpayers never pay tax on income that is excluded. -Interest income from municipal bonds is excluded from gross income. -Deferrals are income items taxpayers realize in one year but include in gross income in a subsequent year. -An income item need not be realized in order to qualify as an exclusion item.

An income item need not be realized in order to qualify as an exclusion item.

Catherine de Bourgh has one child, Anne, who is 18 years old at the end of the year. Anne lived at home for seven months during the year before leaving home to attend State University for the rest of the year. During the year, Anne earned $6,000 while working part time. Catherine provided 80 percent of Anne's support and Anne provided the rest. Which of the following statements regarding whether Anne is Catherine's qualifying child for the current year is correct? -Anne is a qualifying child of Catherine. -Anne is not a qualifying child of Catherine because she fails the gross income test. -Anne is not a qualifying child of Catherine because she fails the residence test. -Anne is not a qualifying child of Catherine because she fails the support test.

Anne is a qualifying child of Catherine. Anne meets the relationship, residency, support, and age tests for determining qualifying child status. There is no gross income test for a qualifying child.

Lydia and John Wickham filed jointly in year 1. They divorced in year 2. In late year 2, the IRS discovered that the Wickham's underpaid their year 1 taxes by $2,000. Both Lydia and John worked in year 1 and received equal income but John had $2,000 less tax withheld than did Lydia. Who is legally liable for the tax underpayment? -Lydia. -John. -Both Lydia and John. -Neither Lydia nor John.

Both Lydia and John. Because the couple filed a joint return both parties are responsible for paying the tax.

Which of the following types of income are not considered ordinary income? -Compensation income. -Net long-term capital gains (in excess of short-term capital losses). -Qualified dividend income. -Both compensation income and qualified dividend income. -Both net long-term capital gains (in excess of short-term capital losses) and qualified dividend income.

Both net long-term capital gains (in excess of short-term capital losses) and qualified dividend income. Both net long-term capital gains and qualified dividend income are subject to preferential rates and are thus not considered to be ordinary income.

William and Charlotte Collins divorced in November of year 1. William moved out and Charlotte remained in their house with their 10-month-old daughter Autumn. Diana, Charlotte's mother, lived in the home and acted as Autumn's nanny for all of year 1. William provided 70% of Autumn's support, Diana provided 20%, and Charlotte provided 10%. When the time came to file their tax returns for year 1, William, Charlotte, and Diana each wanted to claim Autumn as a dependent. Their respective AGIs for year 1 were $50,000, $35,000, and $52,000. Who has priority to claim Autumn as a dependent? William. Charlotte. Diana. They must negotiate amongst themselves.

Charlotte. When a child is a qualifying child of multiple parties, parents have priority over grandparents. Because Charlotte lived with Autumn longer, she has preference over William. AGI is not used as a tiebreaker in this case because the issue was resolved after application of the first two rules.

Which of the following relationships does NOT pass the relationship test for a qualifying child? -Stepsister's daughter. -Half-brother. -Cousin. -Stepsister.

Cousin. Stepsister's daughter, half-brother, and stepsister are all valid relationships for a qualifying child.

Anna is a 21-year-old full-time college student (she plans on returning home at the end of the school year). Her total support for the year was $34,000 (including $8,000 of tuition). Anna covered $12,000 of her support costs out of her own pocket (from savings, she did not work) and she received an $8,000 scholarship that covered all of her tuition costs. Which of the following statements regarding who is allowed to claim Anna as an exemption is true? -Even if Anna's parents provided the remaining $14,000 of support for Anna ($34,000 minus $12,000 minus $8,000), they would not be able to claim her as a dependent. -Even if Anna's grandparents provided the remaining $14,000 of support for Anna ($34,000 minus $12,000 minus $8,000) they would not be able to claim her as a dependent. -Because she provided more than half her own support, Anna may claim a personal exemption for herself. -None of these statements is true.

Even if Anna's grandparents provided the remaining $14,000 of support for Anna ($34,000 minus $12,000 minus $8,000) they would not be able to claim her as a dependent. Anna does not qualify as a qualifying child or relative of her grandparents because she provided more than half her own support. As it relates to the grandparents, the scholarship earned by Anna is treated as support provided by Anna (Anna provided $20,000 and the grandparents provided $14,000 of support). However, because Anna is a full-time college student under age 24, she qualifies as her parents' qualifying child (the scholarship does not count in the support test with respect to the parents). So, Anna may not claim a personal exemption for herself.

Which of the following series of inequalities is generally most accurate? -Gross income ≥ adjusted gross income ≥ taxable income -Adjusted gross income ≥ gross income ≥ taxable income -Adjusted gross income ≥ taxable income ≥ gross income -Gross income ≥ taxable income ≥ adjusted gross income

Gross income ≥ adjusted gross income ≥ taxable income

In April of year 1, Martin left his wife Marianne. While the couple was apart, they were not legally divorced. Marianne found herself having to financially provide for the couple's only child (who qualifies as Marianne's dependent) and to pay all the costs of maintaining the household. When Marianne filed her tax return for year 1, she filed a return separate from Martin. What is Marianne's most favorable filing status for year 1? Married filing separately. Single. Head of household. Qualifying widow.

Head of household. Although she has not lived with Martin for the last six months of the year, she is still legally married as of the end of the year. Because she provided more than half the costs of maintaining a household for her dependent child, and she filed separately from her husband, she can file using the head of household status under the abandoned spouse provision

Jan is unmarried and has no children, but she provides all of the financial support for her mother, who lives in an apartment across town. Jan's mother qualifies as Jan's dependent. Which is the most advantageous filing status available to Jan? -Single. -Head of household. -Qualifying individual. -Surviving single.

Head of household. Jan can claim head of household status if she maintains a separate residence for a parent who is also a dependent.

In year 1, Harold Weston's wife died. Since her death, he has maintained a household for their son Frank (age 3), his qualifying child. Which is the most advantageous filing status available to Harold in year 4? Married filing joint. Surviving spouse. Qualifying widower. Head of household.

Head of household. The special treatment for widows and widowers who maintain a household for a dependent is only available for two years following the year in which the spouse died. After that, the taxpayer is eligible for head of household filing status.

Which of the following shows the correct relationship among standard deduction amounts for the respective filing statuses? -Single > Head of Household > Married Filing Jointly -Married Filing Jointly > Married Filing Separately > Head of Household -Married Filing Jointly > Head of Household > Single -Head of Household > Married Filing Separately > Married Filing Jointly

Married Filing Jointly > Head of Household > Single The standard deduction for single and MFS taxpayers is half that of MFJ taxpayers.

Michael, Diane, Karen, and Kenny provide support for their mother Janet who is 75 years old. Janet lives by herself in an apartment in Los Angeles. Janet's gross income for the year is $3,000. Janet provides 10% of her own support, Michael provides 40% of Janet's support, Diane provides 8% of Janet's support, Karen provides 10% of Janet's support, and Kenny provides the remaining 32% of Janet's support. Under a multiple support agreement, who may claim a dependency exemption for Janet as a qualifying relative? -Michael, Diane, Karen, and Kenny. -Michael, Karen, and Kenny. -Michael and Kenny. -Michael.

Michael and Kenny. Only Michael and Kenny are eligible because they are the only ones who each individually contributed more than 10% of Janet's support.

Katy has one child, Dustin, who is 18 years old at the end of the year. Dustin lived at home for three months during the year before leaving home to work full-time in another city. During the year, Dustin earned $15,000. Katy provided more than half of Dustin's support for the year. Which of the following statements regarding whether Katy may claim Dustin as a dependent for the current year is accurate? -Yes, Dustin is a qualifying child of Katy. -Yes, Dustin fails the residence test for a qualifying child but he is considered a qualifying relative of Katy. -No, Dustin fails the support test for a qualifying relative. -No, Dustin fails the gross income test for a qualifying relative.

No, Dustin fails the gross income test for a qualifying relative. Dustin fails the qualifying child residence test and he fails the qualifying relative gross income test so Katy may not claim Dustin as a dependent.

In year 1, the Bennetts' 25-year-old daughter, Jane, is a full-time student at an out-of-state university but she plans to return home after the school year ends. In previous years, Jane has never worked and her parents have always been able to claim her as a dependent. In year 1, a kind neighbor offers to pay for all of Jane's educational and living expenses. Which of the following statements is most accurate regarding whether Jane's parents would be allowed to claim an exemption for Jane in year 1 assuming the neighbor pays for all of Jane's support? -No, Jane must include her neighbor's gift as income and thus fails the gross income test for a qualifying relative. -Yes, because she is a full-time student and does not provide more than half of her own support, Jane is considered her parent's qualifying child. -No, Jane is too old to be considered a qualifying child and fails the support test of a qualifying relative. -Yes, because she is a student, her absence is considered as "temporary." Consequently she meets the residence test and is a considered a qualifying child of the Bennetts.

No, Jane is too old to be considered a qualifying child and fails the support test of a qualifying relative. After the age of 24, children can no longer be considered qualifying children even if they are full-time students and must be tested as qualifying relatives. The support test for qualifying relatives is different than for qualifying children. The parents must provide more than half of her support to claim a dependency exemption for her.

Which of the following is NOT a from AGI deduction? -Standard deduction. -Itemized deduction. -Personal exemption. -None of these. All of these are from AGI deductions

None of these. All of these are from AGI deductions From AGI deductions consist of the greater of the standard deduction or itemized deductions and personal and dependency exemptions.

All of the following represents a type or character of income except: -Tax exempt. -Capital. -Qualified dividend. -Normal.

Normal. The types or characters of income include tax exempt, tax deferred, capital, ordinary, and qualified dividend. Normal income is not an income type or character.

Char and Russ Dasrup have one daughter, Siera, who is 16 years old. In November of last year, the Dasrup's took in Siera's 16 year old friend, Angela, who has lived with them ever since. The Dasrup's have not legally adopted Angela but Siera often refers to Angela as "her sister." In the current year, the Dasrups provide all of the support for both girls, neither girl receives any income during the year, and both girls live at the Dasrup's residence. Which of the following statements is true regarding the dependency exemptions (and the reason for the exemptions) Char and Russ may claim for the current year for these girls? -One exemption for their daughter Siera as a qualifying child but no exemption for Angela. -One exemption for Siera as a qualifying child and one exemption for Angela as a qualifying child. -One exemption for Siera as a qualifying child and one exemption for Angela as a qualifying relative. -None of these statements is true.

One exemption for Siera as a qualifying child and one exemption for Angela as a qualifying relative. Siera passes all tests of a qualifying child. Angela, however, must be tested as a qualifying relative because she does not meet the relationship test of a qualifying child. Because Angela lived in the Dasrup's home for the entire year, Char and Russ may claim a dependency exemption for Angela as a qualifying relative.

Sheri and Jake Woodhouse have one daughter, Emma, who is 16 years old. They also have taken in Emma's friend, Harriet, who has lived with them since February of the current year and is also 16 years of age. The Woodhouses have not legally adopted Harriet but Emma often refers to Harriet as "her sister." The Woodhouses provide all of the support for both girls, and both girls live at the Woodhouse residence. Which of the following statements is true regarding the dependency exemptions (and the reason for the exemptions) Sheri and Jake may claim for the current year for these girls? -One exemption for their daughter Emma as a qualifying child but no exemption for Harriet. -One exemption for Emma as a qualifying child and one exemption for Harriet as a qualifying child. -One exemption for Emma as a qualifying child and one exemption for Harriet as a qualifying relative. -None of these statements is true.

One exemption for their daughter Emma as a qualifying child but no exemption for Harriet. Emma passes all tests of a qualifying child. Harriet, however, must be tested as a qualifying relative because she does not meet the relationship test of a qualifying child. In order to be considered a qualifying relative, she would have had to live at the Woodhouse residence for the entire year, and not just 11 of 12 months.

Which of the following statements is true? -Income character determines the tax year in which the income is taxed. -Income character depends on the taxpayer's filing status. -Qualified dividend income is taxed at a lower rate than the same amount of ordinary income. -A taxpayer selling a capital asset at a gain recognizes ordinary income.

Qualified dividend income is taxed at a lower rate than the same amount of ordinary income. Qualified dividends are taxed at a maximum rate of 15% or 20% (depending on the taxpayer's income) and are always taxed at a lower rate than the same amount of ordinary income would be. Income character determines the rate at which income is taxed and it does not depend on filing status. Finally, a taxpayer selling a capital asset at a gain recognizes capital gain not ordinary income.

Miguel, a widower whose wife died in year 1, maintains a household for himself and his daughter who qualifies as his dependent. Miguel did not remarry. What is the most favorable filing status that Miguel qualifies for in year 3? -Single. -Qualifying widower. -Head household. -Married, filing separately.

Qualifying widower. Miguel may file as a qualifying widower in years 2 and 3

In June of year 1, Eric's wife Savannah died. Eric did not remarry during year 1, year 2, or year 3. Eric maintains the household for his dependent daughter Catherine in year 1, year 2, and year 3. Which is the most advantageous filing status for Eric in year 2? -Head of household. -Qualifying widower. -Single. -Married filing separately.

Qualifying widower. Since he maintains a household for a dependent child and has not remarried as of the end of year 2, Eric can file as a qualifying widower for year 2.

Which of the following statements regarding realized income is true? -Taxpayers need not include realized income in gross income unless a specific provision of the tax code requires them to do so. -Realized income requires some type of transaction or exchange with a second party. -Once income is realized it may not be excluded from gross income. -None of these statements is true.

Realized income requires some type of transaction or exchange with a second party.

Jane is unmarried and has no children, but provides more than half of her mother's financial support. Jane's mother lives in an apartment across town and has a part-time job earning $5,000 a year. Which is the most advantageous filing status available to Jane? -Single. -Head of household. -Qualifying individual. -Surviving single.

Single. Jane's mother is not Jane's dependent because she fails the qualifying relative gross income test. Consequently, Jane may not file as a head of household.

Jasmine and her husband Arty have been married for 25 years. In May of this year, the couple divorced. During the year, Jasmine provided all the support for herself and her 22-year-old child Dexter who lived in the same home as Jasmine for the entire year. Dexter is employed full-time, earning $29,000 this year. What is the Jasmine's most favorable filing status for the year? -Single. -Married filing separately. -Surviving spouse. -Head of household.

Single. Dexter does not qualify as Jasmine's dependent due to his age and his income so Jasmine must file single for the year.

Which of the following statements regarding exemptions is correct? -Personal exemptions are more valuable than dependency exemptions. -Taxpayers filing a married filing joint return are limited to two exemptions on their tax returns. -Exemption amounts are considered to be for AGI deductions. -Taxpayers subtract exemption deductions from adjusted gross income in determining taxable income.

Taxpayers subtract exemption deductions from adjusted gross income in determining taxable income. Exemptions are considered to be from AGI deductions.

Which of the following statements regarding for AGI tax deductions is true? -Taxpayers subtract for AGI deductions from gross income to determine AGI. -A taxpayer may deduct for AGI deductions only if the deductions exceed the taxpayer's standard deduction amount. -A taxpayer may deduct for AGI deductions only if the deductions exceed the taxpayer's deductible exemption amounts. -A taxpayer may deduct for AGI deductions only if the deductions exceed the taxpayer's itemized deductions.

Taxpayers subtract for AGI deductions from gross income to determine AGI.

Which of the following statements regarding the difference between the requirements for a qualifying child and the requirements for a qualifying relative is false? -The relationship requirement is more broadly defined (more inclusive) for qualifying relatives than for qualifying children. -Qualifying children are subject to age restrictions while qualifying relatives are not. -The support test for qualifying relatives focuses on the support the potential dependent self-provides while the support test for qualifying children focuses on the support the taxpayer provides. -Qualifying relatives are subject to a gross income restriction while qualifying children are not.

The support test for qualifying relatives focuses on the support the potential dependent self-provides while the support test for qualifying children focuses on the support the taxpayer provides. The support test for a qualifying child considers the amount of support the child provided for herself. The support test for a qualifying relative considers the amount of support the taxpayer provided for the prospective dependent.

Which of the following statements regarding personal and dependency exemptions is false? -A married couple filing jointly may claim two personal exemptions. -To qualify as a dependent of another, an individual must be a resident of the United States. -An individual who qualifies as a dependent of another taxpayer may not claim a personal exemption. -An individual cannot qualify as a dependent of another as a qualifying relative taxpayer if the individual's gross income exceeds the exemption amount.

To qualify as a dependent of another, an individual must be a resident of the United States. To qualify as a dependent of another, an individual must be a resident of the United States, Canada, or Mexico. Also, there is no gross income test for a qualifying child.

Which of the following statements regarding personal and dependency exemptions is true? -To qualify as a dependent of another, an individual must be a resident of the United States. -To qualify as a dependent of another, an individual may not file a joint return with the individual's spouse under any circumstance. -To qualify as a dependent of another, an individual must have a family relationship with the other person. -To qualify as a dependent of another, an individual must be either a qualifying child or a qualifying relative of the other person.

To qualify as a dependent of another, an individual must be either a qualifying child or a qualifying relative of the other person. The individual must be either a qualifying child or a qualifying relative of another to be a dependent of that person.

Which of the following is not a filing status? Head of household. Unmarried. Qualifying widow or widower. Married filing jointly.

Unmarried. Unmarried is not a filing status. The other filing statuses not presented here are single and married filing separately.

Charlotte is the Lucas family's 22-year-old daughter. She is a full-time student at an out-of-state university but plans to return to her parents' home when the school year ends. During the year, Charlotte earned $4,000 of income working part-time. Her support totaled $30,000 for the year. Of this amount, Charlotte paid $7,000 with her own funds, her parents paid $14,000, and Charlotte's grandparents paid $9,000. Which of the following statements most accurately describes whether Charlotte's parents can claim a dependency exemption for Charlotte? -Yes, Charlotte is a qualifying child of her parents. -No, Charlotte fails the support test for both qualifying children and qualifying relatives. -No, Charlotte does not pass the gross income test. -Yes, Charlotte is a qualifying relative of her parents.

Yes, Charlotte is a qualifying child of her parents. Because Charlotte is a full-time student and under 24 years of age she passes the age test of a qualifying child. Her time spent away at school is counted as time at home for the residence test. Also, Charlotte did not provide more than half of her own support. There is no gross income test for qualifying children.

All of the following are tests for determining qualifying child status except the _____. -gross income test -age test -support test -residence test

gross income test Qualifying children must pass the relationship, age, support, and residence tests. There is no requirement relating to gross income for purposes of the qualifying child test.

For filing status purposes, the taxpayer's marital status is determined at what point during the year? -the beginning of the year -the end of the year -the middle of the year -None of these

the end of the year Marital status is established as of the end of the year.

Filing status determines all of the following except ___________ -the applicable standard deduction amount. -the appropriate tax rate schedule or tax table. -the standard amount of each personal and dependency exemption. -the AGI threshold for reductions in certain tax benefits.

the standard amount of each personal and dependency exemption. The standard amount of each personal and dependency exemption does not vary by filing status.