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Exam 3: Tax Formula and Tax Determination an Overview of Property Transactions

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Question 61

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Evan and Eileen Carter are husband and wife and file a joint return for 2016.Both are under 65 years of age.They provide more than half of the support of their daughter,Pamela (age 25) ,who is a full-time medical student.Pamela receives a $5,000 scholarship covering her tuition at college.They furnish all of the support of Belinda (Evan's grandmother) ,who is age 80 and lives in a nursing home.They also support Peggy (age 66) ,who is a friend of the family and lives with them.How many dependency exemptions may the Carters claim?

A) Two
B) Three
C) Four
D) Five
E) None of these

F) C) and D)
G) B) and C)

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Question 62

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Match the statements that relate to each other. Note: Choice l. may be used more than once. a.Not available to 65-year old taxpayer who itemizes. b.Exception for U.S. citizenship or residency test (for dependency exemption purposes). c.Largest basic standard deduction available to a dependent who has no earned income. d.Considered for dependency exemption purposes. e.Qualifies for head of household filing status. f.A child (age 15) who is a dependent and has only earned income. g.Considered in applying gross income test (for dependency exemption purposes). h.Not considered in applying the gross income test (for dependency exemption purposes). i.Unmarried taxpayer who can use the same tax rates as married persons filing jointly. j.Exception to the support test (for dependency exemption purposes). k.A child (age 16) who is a dependent and has only unearned income of $4,500. l.No correct match provided. -Resident of Canada or Mexico

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Question 63

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In terms of income tax consequences,abandoned spouses are treated the same way as married persons filing separate returns.

The major advantage of being classified as an abandoned spouse is that the taxpayer is treated for tax purposes as being single and not married.This means that an abandoned spouse can use the more favorable tax rates available to single persons than those available to married persons filing separately.Comment on the accuracy of this conclusion.

In early 2016,Ben sold a yacht,held for 9 months and for pleasure,for a $5,000 gain.Concerned about offsetting the gain before year-end,Ben is considering selling one of the following-each of which would yield a $5,000 loss: ∙ Houseboat used for recreation. ∙ Truck used in business. ∙ Stock investment held for 13 months. Evaluate each choice.

Regarding dependency exemptions, classify each statement in one of the four categories: a.Could be a qualifying child. b.Could be a qualifying relative. c.Could be either a qualifying child or a qualifying relative. d.Could be neither a qualifying child nor a qualifying relative. -A son lives with taxpayer and earns $3,000.

Darren,age 20 and not disabled,earns $4,100 during 2016.Darren's parents cannot claim him as a dependent unless he is a full-time student.

For 2016,Tom has taxable income of $48,005.When he uses the Tax Tables,Tom finds that his tax liability is higher than under the Tax Rate Schedules. a.Why is there a difference? b.Can Tom use the Tax Rate Schedules?

Because they appear on page 1 of Form 1040,itemized deductions are also referred to as "page 1 deductions."

Married taxpayers who file a joint return cannot later (i.e. ,after the filing due date)switch to separate returns for that year.

For tax purposes,married persons filing separate returns are treated the same as single taxpayers.

Regarding head of household filing status,comment on the following: a.A taxpayer qualifies even though he maintains a household which he and the dependent do not share. b.A taxpayer does not qualify even though the person sharing the household is a dependent. c.The usual eventual filing status of a surviving spouse.

Match the statements that relate to each other. Note: Choice l. may be used more than once. a.Available to a 70-year-old father claimed as a dependent by his son. b.Equal to tax liability divided by taxable income. c.The highest income tax rate applicable to a taxpayer. d.Not eligible for the standard deduction. e.No one qualified taxpayer meets the support test. f.Taxpayer's ex-husband does not qualify. g.A dependent child (age 18) who has only unearned income. h.Highest applicable rate is 39.6%. i.Applicable rate could be as low as 0%. j.Maximum rate is 28%. k.Income from foreign sources is not subject to tax. l.No correct match provided. -Global system of taxation

Albert buys his mother a TV.For purposes of meeting the support test,Albert cannot include the cost of the TV.

Which,if any,of the following statements relating to the standard deduction is correct?

Jayden and Chloe Harper are husband and wife and use the calendar year for tax purposes. a.If the Harpers file a joint return for 2016,can they later switch to separate returns for 2016? b.If the Harpers file separate returns for 2016,can they later switch to a joint return for 2016?

Roy and Linda were divorced in 2015.The divorce decree awards custody of their children to Linda but is silent as to who is entitled to claim them as dependents.If Roy furnished more than half of their support,he can claim them as dependents in 2016.

Many taxpayers who previously itemized will start claiming the standard deduction when they purchase a home.

Lena is 66 years of age,single,and blind and is not claimed as a dependent.How much gross income must she have before she is required to file a Federal income tax return for 2016?

Match the statements that relate to each other. Note: Choice l. may be used more than once. a.Available to a 70-year-old father claimed as a dependent by his son. b.Equal to tax liability divided by taxable income. c.The highest income tax rate applicable to a taxpayer. d.Not eligible for the standard deduction. e.No one qualified taxpayer meets the support test. f.Taxpayer's ex-husband does not qualify. g.A dependent child (age 18) who has only unearned income. h.Highest applicable rate is 39.6%. i.Applicable rate could be as low as 0%. j.Maximum rate is 28%. k.Income from foreign sources is not subject to tax. l.No correct match provided. -Territorial system of taxation