Income and Tax accounting

Alicia, age 27, is a single, full-time college student. She earns $13,200 from a parttime job and has taxable interest income of $1,450. Her itemized deductions are $845. Calculate Alicia's taxable income for 2019. (Please note: Chapter 6 will cover the computation of tax credits for dependent college students under age 24.)

$14,650 -12,200 $ 2,450

Ulysses and Penelope are married and file separate returns for 2019. Penelope itemizes her deductions on her return. Ulysses' adjusted gross income was $17,400, his itemized deductions were $2,250. Neither have any dependents. Calculate Ulysses' income tax liability assuming the couple does not live in a community property state.

$17,400 -2,250 $15,150 Ulysses' tax liability from the Tax Table is $1,627. Note: because they are married and filing separately and Ulysses' spouse Penelope itemizes her deductions, Ulysses must also itemize his deductions, even though the itemized deductions total less than the standard deduction he would be otherwise entitled to.

22. What is the total dollar amount of personal and dependency exemptions which a married couple with two children (ages 11 and 14, both of which are qualified children) and $80,000 of adjusted gross income would deduct in 2019? What is the total child and other dependent credit that could be claimed (before any limitations)

0. Exemptions were suspended for child tax credit. (LO 1.6) $4,000. Both children qualify for the $2,000 child tax credit

Determine from the tax table in Appendix A the amount of the income tax for each of the following taxpayers for 2019: Taxpayer(s) Filing Status Allen Single $21,000 $______________ Boyd MFS 24,545 $______________ Caldwell MFJ 35,784 $______________ Dell H of H 27,450 $______________ Evans Single 45,000 $______________

Allen 2329 Boyd $2,749. Caldwell $3,905. Dell $3,020. Evans $5,764.

Maggie is single and supports her 85-year-old parents who have no income and live in a home rented for them by Maggie. What is Maggie's filing status and why?

Head of household. Maggie's parents meet the tests to qualify as her dependents. Maggie is single. Additionally, she provides a home for her parents. Parents are the only exception to the requirement that dependents must live in the same household as the taxpayer to qualify the taxpayer for head of household status.

If Charles, a 16-year-old child model, earns $50,000 a year and is completely selfsupporting even though he lives with his parents, can his parents claim him as a dependent? Why or why not? Whittenburg, Gerald E.. Income Tax Fundamentals 2020 (with Intuit ProConnect Tax Online) (p. 1-38). Cengage Learning. Kindle Edition.

No. Because Charles is self-supporting, his parents may not claim him as a dependent. The self-support test is applied to both children and relatives who otherwise qualify, so Charles is disqualified either way. (LO 1.6)

Marc's brother, Phillip, who is a 20-year-old French citizen, lives in France for the full year. Marc supports Phillip while he attends college. Can Marc claim Phillip as a dependent? Why or why not?

No. Phillip cannot be claimed as a dependent because he is not a U.S. citizen or a resident of the U.S., Canada, or Mexico. (LO 1.6)

19. List each alternative filing status available to unmarried individual taxpayers and the circumstances under which the alternatives can be used.

Single. Unmarried with no dependent.Head of household. Single or abandoned spouse, with qualifying dependent.Qualifying widow(er). Spouse died within the past 2 years and has a qualifying dependent. (LO 1.5)

Christine is a single 50-year-old taxpayer with no dependents. Her only income is $40,750 of wages. Calculate her taxable income and her tax liability. Please show your work.

Taxable income is: $28,550 = $40,750 - $12,200. Tax liability from the tax tables not the tax rate schedules: $3,235. (LO 1.3, 1.5, and 1.7)

25. Describe the difference between the standard deduction and itemized deductions. How should a taxpayer decide whether to take the standard deduction or claim itemized deductions?

The standard deduction is a specific dollar amount that varies with filing status, age and vision, but notby type of individual deduction. Total itemized deductions depend on the amount and type of items, with some items having limitations based on AGI. They include medical expenses, certain taxes, certain interest expenses, charitable contributions and miscellaneous deductions. A taxpayer should claim the larger of the standard deduction or the total allowed itemized deductions to reduce the taxpayer's income subject to tax as much as possible.

Jessica and Carl were married on July 1, 2019. What are their options for filing status for their 2019 taxes?

They may file either as married filing joint or married filing separately. They must file married, since they were married by year-end. (LO 1.5)

Nicoula is a server at a La Jolla restaurant. Nicoula received $1,200 in unreported tips during 2019 and owes Social Security and Medicare taxes on these tips. Her total income for the year, including the tips, is $4,300. Is Nicoula required to file an income tax return for 2019? Why or why not?

Yes. Since Nicoula owes Social Security taxes on the unreported tips, she must file an income tax return. (LO 1.4)

Jayne purchased General Motors stock 6 years ago for $20,000. In the current year, she sells the stock for $35,000. What is Jayne's gain or loss? a. $15,000 long-term gain b. $15,000 short-term gain c. $15,000 ordinary loss d. $15,000 extraordinary gain e. No gain or loss is recognized on this transaction

a. $15,000 long-term gain

Leslie is a single taxpayer who is under age 65 and in good health. For 2019, she has a salary of $24,000 and itemized deductions of $1,000. Leslie allows her mother to live with her during the winter months (3-4 months per year), but her mother provides all of her own support otherwise. a. How much is Leslie's adjusted gross income? $ b. What amount of itemized or standard deduction(s) should she claim? $ c. What is the amount of Leslie's taxable income? $

a. $24,000. b. $12,200, the greater of total itemized deductions or the standard deduction amount. c. $11,800 = $24,000 - $12,200. (LO 1.3)

Jonathan is a 35-year-old single taxpayer with adjusted gross income in 2019 of $46,300. He uses the standard deduction and has no dependents. a. Calculate Jonathan's taxable income. Please show your work. b. When you calculate Jonathan's tax liability are you required to use the tax tables or the tax rate schedules, or does it matter? c. What is Jonathan's tax liability?

a. $34,100 = $46,300 - $12,200 b. Tax tables. Taxpayers with income up to $100,000 must use the tax tables. c. $3,901. (LO 1.3, 1.5, and 1.7)

Jason and Mary are married taxpayers in 2019. They are both under age 65 and in good health. For 2019 they have a total of $41,000 in wages and $700 in interest income. Jason and Mary's deductions for adjusted gross income amount to $5,000 and their itemized deductions equal $18,700. They have two children, ages 32 and 28, that are married and provide support for themselves. a. What is the amount of Jason and Mary's adjusted gross income? $ b. What is the amount of their itemized deductions or standard deduction? $ c. What is their taxable income? $

a. $36,700 = $41,000 + $700 - $5,000. b. $24,400, the greater of itemized deductions or the standard deduction of $24,400. c. $12,300 = $36,700 - $24,400. (LO 1.3)

Diego, age 28, married Dolores, age 27, in 2019. Their salaries for the year amounted to $47,230 and they had interest income of $3,500. Diego and Dolores' deductions for adjusted gross income amounted to $2,000, their itemized deductions were $16,000, and they have no dependents. a. What is the amount of their adjusted gross income? $ b. What is the amount of their itemized deductions or standard deduction? $ c. What is the amount of their taxable income? $ d. What is their tax liability for 2019?

a. $48,730 = $47,230 + $3,500 - $2,000. b. $24,400, the greater of itemized deductions or the standard deduction of $24,400. c. $24,330 = $48,730 - $24,400. d. $2,531 (Tax Table)

In 2019, Lou has a salary of $53,300 from her job. She also has interest income of $1,600 and dividend income of $400. Lou is single and has no dependents. During the year, Lou sold silver coins held as an investment for a $7,000 loss. Calculate the following amounts for Lou: a. Adjusted gross income $ b. Standard deduction $ c. Taxable income $

a. $52,300 = $53,300 + $1,600 +$400 - $3,000 ($7,000 capital loss limited to $3,000) b. $12,200 c. $40,100 = $52,300 - $12,200.

Frank, age 35, and Joyce, age 34, are married and file a joint income tax return for 2019. Their salaries for the year total $84,800 and they have taxable interest income of $3,900. They have no deductions for adjusted gross income. Their itemized deductions are $24,700. Frank and Joyce do not have any dependents. a. What is the amount of their adjusted gross income? $ b. What is their deduction for personal exemptions? $ c. What is the amount of their taxable income? $

a. $88,700 = $84,800 + $3,900. b. $0. c. $64,000 = $88,700 - $24,700.

Jim, age 50, and Martha, age 49, are married with three dependent children. They file a joint return for 2019. Their income from salaries totals $49,500, and they received $10,125 in taxable interest, $5,000 in royalties, and $3,000 in other ordinary income. Jim and Martha's deductions for adjusted gross income amount to $3,200, and they have itemized deductions totaling $18,200. Calculate the following amounts: a. Gross income $ b. Adjusted gross income $ c. Itemized deduction or standard deduction amount $ d. Taxable income $ e. Income tax liability (Do not consider the alternative minimum tax covered in Chapter 6 or any credits.)

a. 67,625 = 49,500 +10125+5000+3000 b. $64,425 = $67,625 - $3,200. c. $24,400, the greater of itemized deductions or the standard deduction of $24,400. d. $40,025 = $64,425 - $24,400. e. $4,415 (LO 1.3, 1.5, and 1.7)

16. Melissa and Aaron are married taxpayers with taxable income of $105,000. a. When you calculate their tax liability, are you required to use the tax tables or the tax rate schedules, or does it matter? b. What is their 2019 tax liability?

a. Because their income exceeds $100,000 the tax rate schedules must be used b. $14,817 = $9,086 + 22% x ($105,000 - $78,950). (LO 1.5)

15. For each of the following cases, indicate the filing status for the taxpayer(s) for 2019 using the following legend: A—Single D—Head of household B—Married filing a joint return E—Qualifying widow(er) C—Married filing separate returns Case Filing Status a. Linda is single and she supports her mother (who has no income), including paying all the costs of her housing in an apartment across town. b. Frank is single and he has a dependent child living in his home.

a. D b. D c. A d. A e. B and C

For each of the following situations (none of the taxpayers claim dependents), indicate whether the taxpayer(s) is (are) required to file a tax return for 2019. Explain your answer. a. Helen is a single taxpayer with interest income in 2019 of $8,750. b. Joan is a single college student who is claimed as a dependent by her parents. She earned $1,550 from a part-time job and has $1,150 in interest income. c. Leslie, age 64, and Mark, age 66, are married and file a joint return. They received $17,800 in interest income from a savings account. d. Ray, age 60, and Jean, age 57, are married and file a joint tax return. Their only income is $14,700 in interest income. e. Harry, a 19-year-old single taxpayer, had net earnings from self-employment of $1,500.

a. No. Yes. No. No. Yes.

Access the Internet and go to www.irs.gov and select "News" in the upper right hand corner (on mobile devices, select "Menu" in the upper right hand corner and select "News"). Select "IRS Guidance"(on mobile devices, hit the plus on "more News," then scroll down until you see "IRS Guidance") and then select "IRS Guidance in Plain English." Which of the following is a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer's specific set of facts? a. Private letter ruling b. Revenue ruling c. Revenue procedure d. Notice e. Regulation

a. Private letter ruling

List three major purposes the tax system is meant to serve:

a. Raising revenue to operate the government. b. Furthering economic goals such as reducing unemployment. c. Furthering social goals such as encouraging contributions to charities.

21. In each of the following situations, determine whether the taxpayer(s) has/have a dependent and if so, the total amount of child tax credit and other dependent credit (assuming no limitations apply). a. Donna, a 20-year-old single taxpayer, supports her mother, who lives in her own home. Her mother has income of $1,350. b. William, age 43, and Mary, age 45, are married and support William's 19-year-old sister, who is not a student. The sister's income from a part-time job is $4,200. c. Devi was divorced in 2018 and receives child support of $250 per month from her ex-husband for the support of their 8-year-old son, John, who lives with her. Devi is 45 and provides more than half of her son's support. d. Wendell, an 89-year-old single taxpayer, supports his son, who is 67 years old, lives with him, and earns no income. e. Wilma, age 65, and Morris, age 66, are married. They file a joint return.

a.Yes $500 other dependent b. No (fails gross income test) $0 c. Yes $2000 child tax credit D. Yes $500 other dependent e. No $0

Mary is single and supports her 30-year-old son who has income of $2,000 and lives in his own apartment. a. Can she claim him as a dependent? b. Can she claim head of household filing status? Why or why not?

a.yes her son qualifies as a dependent, meeting the test to qualify as a relative. b. No. Her son must live in the same household as Mary, so Mary cannot use the head of household filing Yes, her son qualifies as a dependent, meeting the tests of a qualifying relative. status. (LO 1.5

Shannon, a single taxpayer, has a long-term capital loss of $7,000 on the sale of bonds in 2019 and no other capital gains or losses. Her taxable income without this transaction is $47,000. What is her taxable income considering this capital loss? a. $40,000 b. $44,000 c. $47,000 d. $55,000 e. Some other amount

b. $44,000

Yasmine and her spouse Carlos, who file married filing jointly, provide all the support for their 17-year-old son, Miguel. If Miguel qualifies as a qualifying child under the dependent rules, Yasmine and Carlos will be able to claim a. $0 b. $500 c. $1,000 d. $2,000 e. $2,500

b. $500

All of the following are itemized deductions in 2019 except: a. Charitable contributions b. Alimony payments c. State and local taxes d. term-30Medical expenses e. All of the above are itemized deductions

b. Alimony payments

Taxpayers who are 65 or older get the benefit of: a. An additional exemption b. An additional amount added to their standard deduction c. An additional amount added to their itemized deductions d. None of the above

b. An additional amount added to their standard deduction

Taxpayers who are blind get the benefit of: a. An additional exemption b. An additional amount added to their standard deduction c. An additional amount added to their itemized deductions d. None of the above

b. An additional amount added to their standard deduction

Access the Internet and go to www.irs.gov and select "Search Forms & Instructions." Enter "4868" into the search box. What is Line 6 of the Form 4868? a. Total payments b. Balance due c. Your name d. Estimate of total tax liability e. Your social security number

b. Balance due

Electronically filed tax returns: a. May not be transmitted from a taxpayer's home computer b. Constitute more than 90 percent of the returns filed with the IRS c. Have error rates similar to paper returns d. Offer larger refunds than paper returns

b. Constitute more than 90 percent of the returns filed with the IRS

Ramon, a single taxpayer with no dependents, has adjusted gross income for 2019 of $98,000 and his itemized deductions total $19,000. What taxable income will Ramon show in 2019? a. $74,950 b. $74,850 c. $79,000 d. $85,800 e. $87,650

c. $79,000

Which of the following tax forms are used by individuals in 2019? a. 1040A b. 1040-EZ c. 1040-SR d. 1120

c. 1040-SR

Joan, who was divorced in 2019, had filed a joint tax return with her husband in 2018. During 2019, she did not remarry and continued to maintain her home in which her five dependent children lived. In the preparation of her tax return for 2019, Joan should file as: a. A single individual b. A qualifying widow(er) c. Head of household d. Married, filing separately e. None of the above

c. Head of household

Margaret, age 65, and John, age 62, are married with a 23-year-old daughter who lives in their home. They provide over half of their daughter's support, and their daughter earned $4,100 this year from a part-time job. Their daughter is not a full-time student. The daughter can/cannot be claimed as a dependent because: a. She cannot be claimed because she is over 19 and not a full-time student. b. She can be claimed because she is a qualifying child. c. She can be claimed because she is a qualifying relative. d. She cannot be claimed because she fails the gross income test.

c. She can be claimed because she is a qualifying relative.

Which of the following is a deduction for adjusted gross income in 2019? a. Personal casualty losses b. Medical expenses c. student loan interest d. Charitable contributions e. None of the above

c. student loan interest

Ben is a single taxpayer with no dependents and is 32 years old. What is the minimum amount of income that he must have to be required to file a tax return for 2019? a. $4,200 b. $12,700 c. $12,000 d. $12,200 e. None of the above

d. $12,200

On which of these would wage income be reported? a. Schedule 1 b. Schedule 2 c. Schedule 3 d. Form 1040

d. Form 1040

Partnership income is reported on: a. Form 1040 b. Form 1120 c. Form 1040X d. Form 1065

d. Form 1065

Glenda, a single taxpayer from Kansas, paid for more than one-half of the support for her mother, Dorothy. Dorothy did not live with Glenda in Kansas, but rather has lived in a nursing home in an adjacent state since Dorothy's husband died three years ago. Glenda's filing status should be: a. Single b. Married filing separately c. Qualifying widower d. Head of household e. Parental dependent

d. Head of household

Which of the following is not a capital asset to an individual taxpayer? a. Stocks b. A 48-foot sailboat c. Raw land held as an investment d. Inventory in the taxpayer's business e. All of the above are capital assets

d. Inventory in the taxpayer's business

Which of the following recent tax changes is not scheduled to expire after 2025? a. Suspension of personal exemptions b. General lowering of individual tax rates c. Restrictions on the deduction of casualty and theft losses d. Reduction of corporate tax rates to 21 percent

d. Reduction of corporate tax rates to 21 percent

Robin and Howie file married filing jointly and have a 13-year-old daughter. They also provide all the support for Howie's 82-year-old mother, who lives in a nursing home nearby. The amount of the combined child tax credit and other dependent credit for Robin and Howie is: a. $0 b. $1,000 c. $1,500 d. $2,000 e. $2,500

e. $2,500

Arthur is 65 years old and single. He supports his father, who is 90 years old, blind, and has no income. What is Arthur's standard deduction? a. $12,200 b. $13,850 c. $15,500 d. $18,350 e. $20,000

e. $20,000

Alexis purchased a rental house 3 years ago for $290,000. Her depreciation to date is $35,000. Due to aterm-44 decrease in real estate prices, she sells the house for only $280,000 in 2019. What is her gain or loss for tax purposes? a. $0 b. $10,000 loss c. $10,000 gain d. $35,000 loss e. $25,000 gain

e. $25,000 gain

Margaret and her sister support their mother and together provide 85 percent of their mother's support. If Margaret provides 40 percent of her mother's support: a. Her sister is the only one who can claim their mother as a dependent. b. Neither Margaret nor her sister may claim their mother as a dependent. c. Both Margaret and her sister may claim their mother as a dependent. d. Margaret and her sister may split the dependency exemption. e. Margaret may claim her mother as a dependent if her sister agrees in a multiple support agreement.

e. Margaret may claim her mother as a dependent if her sister agrees in a multiple support agreement.