Tax chapter 4
Which filing status is allowed the lowest standard deduction amount? A. Multiple choice question. B. Qualifying widow or widower C. Single D. Married filing jointly Head of household
C
Which filing status is used if one spouse dies during the year and the surviving spouse does not remarry before the end of the year? Multiple choice question. A. Qualifying widow or widower B. Head of household C. Married filing jointly (or separately) D. Single
C
Which of the following items does NOT constitute support when determining who provided the support for a child of the taxpayer who is a full-time student? A. Allowances and gifts B. Food and clothing C. Scholarships D. Recreational activities and camps
C
Which of the following tests states that the qualifying child must NOT have provided more than half his or her own living expenses for the year? A. Gross income B. Residence C. Support D. Relationship
C
True or false: In order to meet the support test for a qualifying child, the taxpayer must provide more than half of the individual's support for the year.
False (The child may be receiving support from someone other than the taxpayer. The rule is that the CHILD cannot provide over half of his/her own support.)
True or false: An individual will qualify as a qualifying child if he satisfies at least one of the following tests: age, support, relationship, and residence.
False
True or false: Depreciable assets used in a trade or business are classified as capital assets.
False (Capital assets do not include accounts receivable from the sale of goods and services, inventory, or assets used in a trade or business.)
All-inclusive income concept
a definition of income that says that gross income means all income from whatever source derived.
Standard deduction
a fixed deduction offered in lieu of itemized deductions. The amount of the standard deduction depends on the taxpayer's filing status.
Rank the filing statuses according to which is the most favorable for taxpayers. Married filing jointly Head of household Single
1. Married filing jointly 2. Head of household 3. Single
Dividends from corporations that meet certain requirements may be taxed at a favorable rate. These dividends are referred to as: A. qualified dividends. B. capital dividends. C. favorable dividends. D. special dividends.
A
Lan is from Vietnam and has lived in the U.S. for five months during the year. He is not yet considered a resident because he hasn't lived in the U.S. for long enough. He resides with his uncle who is a U.S. citizen. Lan is single and a full-time student. If eligible, Lan would otherwise be considered a qualifying child of his uncle. Which of the following is correct regarding Lan's status as a dependent? A. Lan can NOT be claimed as a dependent by his uncle because he is not a citizen or resident of the U.S.. B. Lan can be claimed as a dependent by his uncle because his uncle is a citizen and Lan is a qualifying child. C. Lan can NOT be claimed by his uncle because he would need to meet the qualifying relative requirements, rather than the qualifying child. D. Lan can be claimed by his uncle because he will not have to file a tax return since he has no income.
A
The gross income test requires that a qualifying relative's gross income for 2023 be less than $ __________.
4700
Assuming no multiple-support agreement, to meet the support test to be a qualifying relative of a taxpayer, the taxpayer must pay Blank______ of the individual's support. A. over half B. more than anyone else pays C. at least 10 percent D. all
A
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? A. Head of household B. Single C. Qualifying widower D. Married filing separately
A
When can a single taxpayer's mother or father be a qualifying person for determining head of household filing status? A. When the taxpayer pays over half the cost of maintaining a parent's home. B. When the parent lives with the taxpayer regardless of whether he or she is a dependent of the taxpayer C. Never; only a qualifying child can cause a taxpayer to qualify for head of household status
A
When is it possible for a qualifying person for determining head of household status to NOT live with the taxpayer? A. If the person is the parent of the taxpayer B. If the person is the married child of the taxpayer C. If the person is the child of the taxpayer, but lives with the other parent
A
Which of the following criteria is NOT necessary to qualify as a dependent of another taxpayer? A. Must be unmarried for at least a portion of the year B. Must NOT file a joint return unless there is no tax liability on the couple's tax return C. Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico D. Must be considered either a qualifying child or a qualifying relative
A
Which one of the following assets is classified as a capital asset? A. A car used personally B. Inventory in a business C. A building used in a business D. Accounts receivable from the sale of goods
A
Why are for AGI deductions preferable to from AGI deductions? Multiple choice question. A. For AGI deductions reduce AGI thus increasing deductibility of from AGI deductions based on AGI. B. For AGI deductions cause a dollar for dollar drop in tax liability. C. For AGI deductions are only taken if itemized deduction exceeds standard deduction.
A
Which of the following assets are classified as capital assets? (Select all that apply.) A. Stock held for investment B. Inventory held for sale in a business C. A house owned and used by a taxpayer D. Supplies used in a business
A and C
Which of the following individuals meet the requirements to be qualifying children for Tonya? (Select all that apply.) A. Sandy (age 23) does not provide half of her own support. She is a full-time college student, earned $7,000 this year, and lives with her aunt, Tonya. B. Ron (age 20) provides over half of his own support. He is a full-time college student, earned $12,000 this year, and lives with his mother, Tonya. C. Vinnie (age 17) does not provide half of his own support. He is in high school, earned $5,000 this year, and lives with his mother, Tonya. D. Pam (age 19) receives 70% of her support from her cousin, Tonya. Pam is a full-time student, earned $7,000, and lived with Tonya 7 months this year.
A and C
Which of the following requirements are necessary to qualify for head of household status? (Select all that apply.) A. Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year B. Have lived with a qualifying person in the taxpayer's home for the entire year C. Pay more than half the costs of keeping up a home for the year D. Be a qualifying widow or widower
A and C
Which of the following requirements are necessary to qualify for head of household status? (Select all that apply.) A. Pay more than half the costs of keeping up a home for the year B. Have lived with a qualifying person in the taxpayer's home for the entire year C. Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year D. Be a qualifying widow or widower
A and C
Which of the following requirements are necessary to qualify for head of household status? (Select all that apply.) A. Pay more than half the costs of keeping up a home for the year B. Be a qualifying widow or widower C. Have lived with a qualifying person in the taxpayer's home for the entire year D. Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year
A and D
Which of the choices below are the tests that must be met to qualify as a qualifying relative? (Select all that apply.) A. Gross income B. Relationship C. Support D. Occupation E. Age
A, B and C
True or false: A taxpayer may deduct both his standard deduction and his itemized deductions from AGI in order to calculate taxable income.
False
Which of the following individuals would meet the relationship test for being a qualifying child of the taxpayer? (Select all that apply.) A. Nephew (younger than the taxpayer) B. Half-sister (younger than the taxpayer) C. Cousin (younger than the taxpayer) D. Aunt E. Grandmother F. Stepson
A, B and F
A taxpayer may file as a single taxpayer when: A. she is separated from her husband, but not yet divorced B. she is unmarried at the end of the tax year C. she has been unmarried for over half of the year D. her spouse died during the year
B
Melina's daughter, Linda, is considered permanently and totally disabled. Linda is 30 years old and still lives with Melina. Which of the following statements is accurate regarding the age test for a qualifying child as it applies to Linda? A. Linda does NOT meet the age test because she is not a full-time student. B. Linda is deemed to meet the age test because she is permanently and totally disabled. C. Linda does NOT meet the age test because she is not under the age of 19.
B
Ruida divorced on October 31 of the current year. He does NOT have any dependents. Which filing status should Ruida use for the current year? A. Head of household B. Single C. Married filing separately D. Qualifying widow
B
Which filing status is allowed the lowest standard deduction amount? A. Head of household B. Single C. Married filing jointly D. Qualifying widow or widower
B
Which filing status is used if one spouse dies during the year and the surviving spouse does not remarry before the end of the year? A. Single B. Married filing jointly (or separately) C. Qualifying widow or widower D. Head of household
B
Which of the following individuals meet the requirements of a qualifying person for determining head of household filing status? A. The taxpayer's child who resides with his other parent for over half the year, but where the taxpayer gets the earned income credit B. The taxpayer's mother who is dependent of the taxpayer, but lives in her own home which is maintained by the taxpayer C. A friend of the taxpayer who is a qualifying relative because he lives with the taxpayer for the entire year D. An unmarried son who is NOT a dependent but lives with his father for most of the year
B
Which one of the following choices is the definition of realized income? A. Income consisting of cash receipts only - not bartering or credit transactions B. Income from a transaction with a second party where there is a measurable change in property rights between parties C. Income that must be reported on the current year's tax return D. Income that is subject to federal income tax
B
Which two filing statuses have the same standard deduction amount? A. Married filing separately and married filing jointly B. Married filing separately and single C. Head of household and married filing separately D. Qualifying widow/widower and single
B
Yolanda is your client. With her current level of taxable income, she is paying tax at a 24% marginal rate. She received $2,000 in qualified dividends this year. What rate of tax do you expect that Yolanda will pay on her dividends? A. Qualified dividends are tax-exempt income, so the dividends will not be taxed now or in the future. B. The qualified dividends are taxed at a favorable rate. Since Yolanda is in the 24% bracket, the dividends will be taxed at 15%. C. The dividends are considered ordinary income, so they will be taxed at Yolanda's marginal rate of 24%. D. Qualified dividends are tax deferred income and will be taxed in a future year when the underlying investment is sold.
B (Qualified dividends are taxed at favorable rates. For taxpayers with a marginal rate of 10-15%, the rate is 0%; for taxpayers with a marginal rate of 37%, the rate is 20%,; for taxpayers with marginal rates between those levels, the rate is 15%.)
Which of the following taxes may be imposed in addition to the individual income tax and are calculated on tax bases other than the regular taxable income? (Select all that apply.) A. Value-added tax B. Self-employment tax C. Capital gains tax D. Alternative minimum tax
B and D
Under a multiple support agreement, taxpayers who DON'T pay over half of an individual's support may still be allowed to claim the individual as a dependent if which of the following rules apply? (Select all that apply.) A. The taxpayer contributed over 5 percent of the individual's support for the year. B. The taxpayer and at least one other person provided over one-half of the support of the individual. C. No one taxpayer paid over one-half of the individual's support. D. All other individuals contributing more than 10 percent support provides statements to taxpayer agreeing NOT to claim the individual as a dependent. E. The individual earns more than the gross income test amount ($4,700), but NOT enough to provide half of his support.
B, C and D
Which of the following criteria will contribute toward qualifying a taxpayer for head of household status? (Select all that apply.) A. Be married with a spouse that is not employed outside the home B. Provide over half the cost of maintaining a household for a dependent parent not living with the taxpayer C. Have lived with a qualifying person in the taxpayer's home for more than half the year D. Pay more than half the costs of keeping up a home for the year E. Be a qualifying widow or widower F. Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year
B, C, D and F
Which of the following individuals would meet the relationship test for being a qualifying child of the taxpayer? (Select all that apply.) A. Father B. Child C. Brother (younger than the taxpayer) D. Grandchild E. Niece (younger than the taxpayer) F. Cousin (younger than the taxpayer)
B, C, D, and E
Which of the following items are deductions FOR adjusted gross income? (Select all that apply.) A. Mortgage interest on a personal residence B. Capital losses C. Health insurance for self-employed persons D. Deduction for Qualified Business Income E. Alimony paid for divorces finalized before 1/1/2019 F. Contributions to (non Roth) qualified retirement accounts
B, C, E and F
A tax __________ reduces taxable income and a tax ____________ reduces the tax liability dollar for dollar.
Blank 1: deduction(s) Blank 2: credit(s)
Some tax deductions are subtracted __________ AGI and some are subtracted __________ AGI.
Blank 1: for Blank 2: from
Head of household status is __________ (less/more) favorable than the married filing jointly status, but (less/more) __________ favorable than the single filing status.
Blank 1: less Blank 2: more
A taxpayer's filing status depends on his or her ___________ status at the end of the year and whether the taxpayer has any ___________.
Blank 1: marital, marriage, or married Blank 2: dependents or dependent
Taxpayers pay the same __________ tax rates on qualified dividends and long term capital gains, but the amount of the dividends and long term capital are not __________ together.
Blank 1: preferential, preferred, or lower Blank 2: netted, net, added, or summed
The U.S. tax laws are based on the all-inclusive concept where gross income includes all realized income from "whatever __________, __________."
Blank 1: source(s) Blank 2: derived
The three tests that must be met to qualify as a qualifying relative are: _________ , __________ , __________ and . (Each blank may contain more than one word.)
Blank 1: support or support test Blank 2: relationship or relationship test Blank 3: gross income or gross income test
Hillary, Craig, and David provide 60% of the support for their elderly aunt, Brooke. Hillary provides 8%, while Craig provides 40% and David provides 12%. Which of the taxpayers are eligible to claim Brooke as a dependent? A. Hillary, Craig and David B. No one C. Craig and David D. Only Craig
C
In order to meet the requirements of the residence test for a qualifying child, the individual must live with the taxpayer for: A. the entire year B. at least one-third of the year C. more than half the year D. longer than he has resided with anyone else during the year
C
Kayla and Ben were married in November of the current year. What will be their filing status for the current year? A. One spouse can file as head of household and the other will file single since they live together but have been married less than half the year B. Single because they were married for less than half of the year C. Married filing jointly (or separately) because they were married as of the end of the year D. Married filing separately because they have been married for less than half of the year
C
Kayla and Ben were married in November of the current year. What will be their filing status for the current year? A. Married filing separately because they have been married for less than half of the year B. Single because they were married for less than half of the year C. Married filing jointly (or separately) because they were married as of the end of the year D. One spouse can file as head of household and the other will file single since they live together but have been married less than half the year
C (Reason: MFJ (or MFS) - marital status is determined on the last day of the tax year)
Which of the following statements is INCORRECT? A. Both tax deductions and tax credits reduce taxable income. B. Both tax deductions and tax credits are a matter of legislative grace. C. Both tax deductions and tax credits are specifically granted by Congress and are narrowly defined.
C (Reason: Tax deductions reduce taxable income, while tax credits reduce the tax liability dollar for dollar.)
When can the married filing jointly or married filing separately filing status be used? (Select all that apply.) A. When the taxpayers are unmarried, but have lived together for the entire year B. When the taxpayers are unmarried, but have a dependent child living with them C. When the taxpayers are married as of the last day of the tax year D. When one spouse died during the year and the surviving spouse has not remarried E. When the taxpayers have been married for any part of the tax year
C and D
When can the married filing jointly or married filing separately filing status be used? (Select all that apply.) A. When the taxpayers are unmarried, but have lived together for the entire year B. When the taxpayers are unmarried, but have a dependent child living with them C. When the taxpayers have been married for any part of the tax year When the taxpayers are married as of the last day of the tax year D. When one spouse died during the year and the surviving spouse has not remarried
C and D
Which of the following assets are classified as capital assets? (select all that apply.) A. Inventory held for sale in a business B. Supplies used in a business C. A house owned and used by a taxpayer D. Stock held for investment
C and D
Which of the following criteria is necessary to qualify as a dependent of another taxpayer? (Select all that apply.) A. Must be considered both a qualifying child and a qualifying relative B. Must NOT be required to file a tax return of his own C. Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico D. Must NOT file a joint return unless there is no tax liability on the couple's return and no tax liability on either return if they filed separately E. Must be considered either a qualifying child or a qualifying relative
C, D, and E
Andrew is trying to determine if Annie will qualify as his dependent. She will NOT meet the criteria for a qualifying child, so Andrew is checking to see if she is a qualifying relative. Assuming there is NOT a multiple support agreement involved, which one of the following criteria for the support test must be met in order for Annie to be considered a qualifying relative for Andrew? A. Annie must live with the Andrew for over half of the year in order to meet the support test. B. Annie must NOT provide over half of her own support, but it doesn't matter who is providing the support. C. Annie must be related to the Andrew in order to meet the support test. D. Andrew must provide over half of Annie's support for the year.
D
Which filing status is allowed the highest standard deduction amount? A. Head of household B. Married filing separately C. Single D. Married filing jointly
D
Which of the following would most likely NOT qualify as support for meeting the support test? A. Summer camp with horseback riding, swimming, and other activities B. A wedding dress C. Medical and dental care D. A riding lawnmower used by a child to mow the family yard
D
Which one of the following individuals would NOT meet the relationship test for being a qualifying relative of the taxpayer through a qualifying family relationship? A. Aunt B. Nephew C. Mother D. Cousin E. Sister-in-law F. Grandmother
D
Expenses such as alimony paid for divorces finalized before 1/1/2019, contributions to qualified retirement accounts, and business expenses for self-employed persons are deductions ___________ AGI.
For
Tax tables
IRS-provided tables that specify the federal income tax liability for individuals with taxable income within a specific range. The tables differ by filing status and reflect tax rates that increase with taxable income.
Examples of a 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 year's tax liability.
Prepayment
Self-employment taxes
Social Security and Medicare taxes paid by the self-employed on a taxpayer's net earnings from self-employment. For self-employed taxpayers, the terms "self-employment tax" and "FICA tax" are synonymous.
Abandoned spouse
a married taxpayer who lives apart from their spouse for the last six months of the year (excluding temporary absences), who files a tax return separate from their spouse, and who maintains a household for a qualifying child.
Tax rate schedule
a schedule of progressive tax rates and the income ranges to which the rates apply that taxpayers may use to compute their gross tax liability.
Alternative minimum tax (AMT)
a tax on a broader tax base than the base for the "regular" tax; the additional tax paid when the tentative minimum tax (based on the alternative minimum tax base) exceeds the regular tax (based on the regular tax base). The alternative minimum tax is designed to require taxpayers to pay some minimum level of tax even when they have low or no regular taxable income as a result of certain tax breaks in the tax code.
Character of income
a type of income that is treated differently for tax purposes from other types of income. Common income characters (or types of income) include ordinary, capital, and qualified dividend.
Deductions
amounts that are subtracted from gross income in calculating taxable income.
Qualifying relative
an individual who is not a qualifying child of another taxpayer and who meets a relationship, support, and gross income test and thus qualifies to be a dependent of another taxpayer.
Qualifying child
an individual who qualifies as a dependent of a taxpayer by meeting a relationship, age, residence, and support test with respect to the taxpayer.
Which one of the following individuals meet the requirements to be a qualifying relative (not a qualifying child) for Owen? A. Sandy (age 23) does not provide half of her own support. She is a full-time college student, earned $7,000 this year, and lives with her uncle, Owen. B. Owen provides over half of his son, Vinnie's (age 20) support. Vinnie, a part-time college student, earned $3,800 and lived with Owen. C. Ron (age 22) provides over half of his own support. He is a full-time student, earned $12,000, and lived with his cousin, Owen the entire year. D. Owen provides over half of his niece, Rani's (age 21) support. Rani is a full-time college student, earned $6,000, and lived with Owen.
b
Itemized deductions
certain types of expenditures that Congress allows taxpayers to deduct as from AGI deductions.
From AGI deductions
deductions subtracted from AGI to calculate taxable income.
For AGI deductions
deductions that are subtracted from gross income to determine AGI.
Filing status
filing status places taxpayers into one of five categories (married filing jointly, married filing separately, qualifying surviving spouse, head of household, and single) by marital status and family situation as of the end of the year. Filing status determines whether a taxpayer must file a tax return, appropriate tax rate schedules, standard deduction amounts, and certain deduction and credit limitation thresholds.
Deferral items, deferred income, or deferrals
realized income that will be taxed as income in a subsequent year.
Deductions above the line
for AGI deductions or deductions subtracted from gross income to determine AGI.
Deductions below the line
from AGI deductions or deductions subtracted from AGI to calculate taxable income.
Adjusted gross income (AGI)
gross income less deductions for AGI. AGI is an important reference point that is often used in other tax calculations.
Realized income
income generated in a transaction with a second party in which there is a measurable change in property rights between parties.
Tax credits
items that directly reduce a taxpayer's tax liability.
Single
one of five primary filing statuses. A taxpayer files as single if they are unmarried as of the end of the year and does not qualify for any of the other filing statuses. A taxpayer is considered single if they are unmarried or legally separated from their spouse under a divorce or separate maintenance decree.
Head of household
one of five primary filing statuses. A taxpayer may file as head of household if they are unmarried as of the end of the year and pays more than half of the cost to maintain a household for a qualifying person who lives with the taxpayer for more than half of the year; or they pay more than half the costs to maintain a household for a parent who qualifies as the taxpayer's dependent.
Married filing jointly
one of five primary filing statuses. A taxpayer may file jointly if they are legally married as of the end of the year (or one spouse died during the year and the surviving spouse did not remarry) and both spouses agree to jointly file. Married couples filing joint returns combine their income and deductions and share joint and several liability for the resulting tax.
Married filing separately
one of five primary filing statuses. When married couples file separately, each spouse reports the income they received during the year and the deductions they paid on a tax return separate from the other spouse.
If an individual could be a qualifying child for either her parent or her grandparent, the _____________ (parent/grandparent) is entitled to claim the child as a dependent.
parent
In order to meet the criteria for a ____________________, the dependent must NOT have provided more than half of his or her own support for the year. However, the support may have been provided by someone other than the taxpayer.
qualifying child
Estimated tax payments
quarterly tax payments that a taxpayer makes to the government if the tax withholding is insufficient to meet the taxpayer's tax liability.
Gross income
realized income minus excluded and deferred income.
Exclusions or excluded income
realized income that is exempted from income taxation.
Unmarried taxpayers will file as __________ , if they do NOT qualify for head of household or qualifying widow(er) status.
single
In order to meet the ___________ test, the taxpayer must pay more than half of the living expenses for the qualifying relative.
support
Withholdings
taxes collected and remitted to the government by an employer from an employee's wages.
Legislative grace
the concept that taxpayers receive certain tax benefits only because Congress writes laws that allow taxpayers to receive the tax benefits.
Net capital gain
the excess of net long-term capital gain for the taxable year over net short-term capital loss for such year.
Taxable income
the tax base for the income tax.