Tax Accounting Chapter 4

Lee is 30 years old and single. Lee paid all the costs of maintaining his household for the entire year. Determine Lee's filing status in each of the following alternative situations: a. Lee is Ashton's uncle. Ashton is 15 years old and has gross income of $5,000. Ashton lived in Lee's home from April 1 through the end of the year. b. Lee is Ashton's uncle. Ashton is 20 years old, not a full-time student, and has gross income of $7,000. Ashton lived in Lee's home from April 1 through the end of the year. c. Lee is Ashton's uncle. Ashton is 22 years old and was a full-time student from January through April. Ashton's gross income was $5,000. Ashton lived in Lee's home from April 1 through the end of the year. d. Lee is Ashton's cousin. Ashton is 18 years old, has gross income of $3,000, and is not a full-time student. Ashton lived in Lee's home from April 1 through the end of the year. e. Lee and Ashton are cousins. Ashton is 18 years old, has gross income of $3,000, and is not a full-time student. Ashton lived in Lee's home for the entire year.

A) Head of household B) Single C) Single D) Single E) Single

In May of year 1, David left his wife Juliette. While the couple was apart, they were not legally divorced. Juliette found herself having to financially provide for the couple's only child (6 years of age) and to pay all the costs of maintaining the household. When Juliette filed her tax return for year 1, she filed a return separate from David. What is Juliette's most favorable filing status for year 1?

head of household

Which of the following is a from AGI deduction?

home mortgage interest expense

Jeremy earned $100,000 in salary and $6,000 in interest income during the year. Jeremy's employer withheld $11,000 of federal income taxes from Jeremy's paychecks during the year. Jeremy has one qualifying dependent child who lives with him. Jeremy qualifies to file as head of household and has $23,000 in itemized deductions. (Use the tax rate schedules.)

1) Gross Income $106,000 2) For AGI deductions $0 3) Adjusted Gross Income $106,000 4) Standard deduction $18,350 5) Itemized deductions $23,000 6) Greater of standard deduction or itemized deductions $23,000 7) Taxable Income $83,000 8) Income Tax Liability $12,698 9) Child Tax Credit $2,000 10) Tax WIthholding $11,000 Tax refund $302

(Extra to Question 1/2) c. Assume the original facts except that Jeremy has only $7,000 in itemized deductions. What is Jeremy's tax refund or tax due?

1) Gross Income $106,000 2) For AGI deductions $0 3) Adjusted Gross Income $106,000 4) Standard deduction $18,350 5) Itemized deductions $7,000 6) Greater of standard deduction or itemized deductions $18,350 7) Taxable Income $87,650 8) Income Tax Liability $13,790 9) Child Tax Credit $2,000 10) Tax WIthholding $11,000 Tax due $790

(Extra to Question 1) b. Assume that in addition to the original facts, Jeremy has a long-term capital gain of $4,000. What is Jeremy's tax refund or tax due including the tax on the capital gain? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

1) Gross Income $110,000 2) For AGI deductions $0 3) Adjusted Gross Income $110,000 4) Standard deduction $18,350 5) Itemized deductions $23,000 6) Greater of standard deduction or itemized deductions $23,000 7) Taxable Income $87,000 8) Income Tax Liability $13,298 9) Child Tax Credit $2,000 10) Tax WIthholding $11,000 Tax due $298

Sarah is the Colton family's 23-year-old daughter. She is a full-time student at an out-of-state university (for 8 months of the year) but plans to return home when the school year ends. During the year, Sarah earned $4,500 of income working part-time. Her support totaled $20,000 for the year. Of this amount, Sarah paid $7,000 with her own funds, her parents paid $12,000, and Sarah's grandparents paid $1,000. Which of the following statements most accurately describes whether Sarah's parents can claim a dependency exemption for her?

Yes, Sarah is a qualifying child of her parents

Marc and Michelle are married and earned salaries this year of $64,000 and $12,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from corporate bonds. Marc contributed $2,500 to an individual retirement account, and Marc paid alimony to a prior spouse in the amount of $1,500. Marc and Michelle have a 10-year-old son, Matthew, who lived with them throughout the entire year. Thus, Marc and Michelle are allowed to claim a $2,000 child tax credit for Matthew. Marc and Michelle paid $6,000 of expenditures that qualify as itemized deductions and they had a total of $3,500 in federal income taxes withheld from their paychecks during the course of the year. (Use the tax rate schedules.) a. What is Marc and Michelle's gross income? b. What is Marc and Michelle's adjusted gross income? c. What is the total amount of Marc and Michelle's deductions from AGI? d. What is Marc and Michelle's taxable income? e. What is Marc and Michelle's taxes payable or refund due for the year?

a) Marc's salary: $64,000 Michelle's salary $12,000 Corporate bond interest $500 b) $72,500 c) $24,400 d) $48,100 e) Refund due $116

A temporary absence from the taxpayer's home for full-time schoolwork by the child may cause the child to fail the qualifying child residence test.

false

Income-related items are excluded from gross income unless specifically included by a provision in the tax code.

false

Caroline and her husband Chris got divorced in May of this year. During the year, Caroline provided all the support for herself and her 23-year-old child Hans (not a full-time student) who lived in the same home as Caroline for the entire year. Hans earned $29,000 this year. What is the Caroline's most favorable filing status for the year?

single

For purposes of determining filing status, a taxpayer's marital status is determined on the last day of the tax year in question.

true

If spouses are filing separate returns and one spouse itemizes deductions, the other spouse must also itemize deductions even when the second spouse's itemized deductions are less than the standard deduction.

true

In prior years, John was single and he was a qualifying child of his parents. This year John, age 23 and a full-time student, got married. John and his wife file a joint return. If they were to file separately, John would report a $0 tax liability. John's wife would report a $200 tax liability. John's parents cannot claim him as a dependent in the current year.

true