Chapter 4

Which of the following choices are forms of tax prepayments? (Check all that apply) 1) Estimated tax payments the taxpayer made directly to the IRS 2) Income tax withheld from a taxpayer's salary or wages by an employer 3) An overpayment of taxes in the prior year that was applied as an estimated payment for the current year. 4) A tax refund received in the current year for the prior year. 5) A tax credit used to reduce the tax liability in the current year.

1, 2, and 3

Which of the following individuals would be considered as an eligible relatives to meet the relationship test for being a qualifying child of the taxpayer? (Check all that apply) 1) Child 2) Father 3) Brother (younger than the taxpayer) 4) Grandchild 5) Niece (younger than the taxpayer) 6) Cousin (younger than the taxpayer)

1, 3, 4, and 5

Which of the following choices describe tax deductions? (Check all that apply) 1) Tax deductions reduce an individual's tax liability dollar for dollar. 2) Taxpayers are NOT allowed to deduct anything unless a specific tax provision allows them to do so. 3) Tax deductions are a matter of legislative grace. 4) Tax deductions, like income, follow the all-inclusive concept.

2 and 3

Which of the following items are deductions FOR adjusted gross income? (Check all that apply) 1) Mortgage interest on a personal residence 2) Alimony paid for divorces finalized before 1/1/2019 3) Personal and dependency exemptions 4) Capital losses 5) Health insurance for self-employed persons 6) Contributions to (non Roth) qualified retirement accounts

2, 4, 5, and 6

Justin is single and is claimed as a dependent on his parent's tax return. Justin earned $6,500 in 2018, received $1,000 in interest income, and has $400 in itemized deductions. What is the amount of Justin's FROM AGI deductions? A) $6,850 B) $1,050 C) $12,000 D) $0

A) $6,850 Because Justin is the dependent of another taxpayer, his standard deduction is limited to the greater of $1,050 or his earned income plus $350, but no more than the individual standard deduction of $12,000 or the taxpayer's AGI.

Which of the choices below is NOT one of the tests that must be met to qualify as a qualifying relative? A) Age B) Gross income C) Support D) Relationship

A) Age

What is meant by the all-inclusive concept when referring to the U.S. tax laws? A) Gross income includes all realized income from whatever source derived. B) Gross income includes all increases in wealth, regardless of whether the income has been realized during the year. C) Gross income includes all cash received from any source. D)

A) Gross income includes all realized income from whatever source derived.

If an individual qualifies as a dependent of another taxpayer, which of the following statements is true? A) He may still claim the standard deduction on his own return. B) He is NOT required to file a tax return of his own regardless of his income level. C) He may NOT use a standard deduction on his own tax return. D) He must list his income on the tax return with the taxpayer who is claiming him as a dependent.

A) He may still claim the standard deduction on his own return.

If an individual qualifies as a dependent of another taxpayer, which of the following statements is true? A) He may still claim the standard deduction on his own return. B) He may NOT use a standard deduction on his own tax return. C) He must list his income on the tax return with the taxpayer who is claiming his as a dependent. D) He is NOT required to file a tax return of his own regardless of his income level.

A) He may still claim the standard deduction on his own return.

Which filing status is allowed the highest standard deduction amount? A) Married filing jointly B) Married filing separately C) Single D) Head of household

A) Married filing jointly

An individual that is unrelated to the taxpayer may meet the relationship test for a qualifying relative if he or she: A) lives with the taxpayer for the entire year. B) lives with the taxpayer for less than the entire year, but more than half the year. C) marries the taxpayer during the year.

A) lives with the taxpayer for the entire year.

Which one of the following assets is classified as a capital asset? A) Inventory in a business B) A car used personally C) Accounts receivable from the sale of goods D) A building used in a business

B) A car used personally

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) Allowance and gifts B) Scholarships C) Food and clothing D) Recreational activities and camps

B) Scholarships

Chasity is 20, has a full-time job, and supports herself. Her brother, William, age 22, has decided to go back to college. He moved in with Chasity and is attending college full-time. Which of the following statements is accurate regarding the age test for a qualifying child and how it applies to William? A) William does NOT meet the age test because he is not Chasity's child. B) William does NOT meet the age test because he is older than Chasity. C) William meets the age test because he is full-time student under age 24. D) William does NOT meet the age test because he is not under the age of 19.

B) William does NOT meet the age test because he is older than Chasity.

Which of the following statements is TRUE regarding the individual income tax formula? A) A taxpayer may deduct the greater of his standard deduction or his personal exemption for AGI to arrive at adjusted gross income. B) A taxpayer may deduct the greater of his standard deduction or his personal exemption from AGI to arrive at taxable income. C) A taxpayer may deduct the greater of his standard deduction or his itemized deductions from AGI to arrive at taxable income. D) A taxpayer may deduct the greater of his standard deduction or his itemized deductions for AGI to arrive at adjusted gross income.

C) A taxpayer may deduct the greater of his standard deduction or his itemized deductions from AGI to arrive at taxable income.

Why are for AGI deductions preferable to from AGI deductions? A) For AGI deductions are only taken if itemized deduction exceeds standard deduction. B) For AGI deductions cause a dollar for dollar drop in tax liability. C) For AGI deductions reduce AGI thus increasing deductibility of from AGI deductions based on AGI.

C) For AGI deductions reduce AGI thus increasing deductibility of from AGI deductions based on AGI.

Which of the following statements is INCORRECT when referring to capital gains and losses? A) Deductible capital losses that exceed capital gains are limited to $3,000 against ordinary income in one year. B) Capital gains on assets that were held more than one year are taxed at 0%, 15%, or 20%, depending on the taxpayer's marginal rate. C) Losses on personal use assets are fully deductible against ordinary income. D) Capital gains on assets that were held one year or less are taxed at ordinary income rates.

C) Losses on personal use assets are fully deductible against ordinary income.

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) longer than he has resided with anyone else during the year C) at least one-third of the year D) more than half the year

D) more than half the year

Dividends from corporations that meet certain requirements may be taxed at a favorable rate. These dividends are referred to as: A) favorable dividends B) special dividends C) capital dividends D) qualified dividends

D) qualified dividends

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.

True or false: A taxpayer must deduct both his standard deduction and his itemized deductions from AGI in order to calculate taxable income.

False He can only deduct the one of these amounts and should usually choose the larger of the two.

In order to meet the criteria for a qualifying _______ (choose either: child/relative), the dependent must NOT have provided more than half of his or her own support for the year. However, the support generally includes food, school lunches, clothing, recreation expenses etc.

child

If an individual could be a qualifying child for either her parent or her grandparent, the _______ (parent/grandparent) is entitled to the dependency exemption.

parent

For tax years prior to 2018, 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 are called _________ exemptions.

personal; dependency

The four tests that must be met to qualify as a qualifying child are: _________, _________, ___________, and ____________.

relationship; age; residence; support

In order to meet the _______ test, the taxpayer must pay more than half of the living expenses for the qualifying relative.

support