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Exam 3: Computing the Tax

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Question 41

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Homer (age 68) and his wife Jean (age 70) file a joint return.They furnish all of the support of Luther (Homer's 90-year old father), who lives with them.For 2012, they received $6,000 of interest income on city of Chicago bonds and interest income on corporate bonds of $48,000.Compute Homer and Jean's taxable income for 2012.

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$22,400.Their gross income is $48,000 si...

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Question 42

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Which, if any, of the statements regarding the standard deduction is correct?

A) Some taxpayers may qualify for two types of standard deductions.
B) Not available to taxpayers who choose to deduct their personal and dependency exemptions.
C) Not available to taxpayers who choose to claim their deduction for AGI.
D) The basic standard deduction is indexed for inflation but the additional standard deduction is not.
E) None of the above.

F) A) and B)
G) A) and C)

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Question 43

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Ellen, age 39 and single, furnishes more than 50% of the support of her parents, who do not live with her.Ellen practices as a self-employed interior decorator and has gross income in 2012 of $120,000.Her deductions are as follows: $30,000 business and $8,100 itemized.

Millie, age 80, is supported during the current year as follows: During the year, Millie lives in an assisted living facility.Under a multiple support agreement, indicate which parties can qualify to claim Millie as a dependent.

During the year, Irv had the following transactions: How are these transactions handled for income tax purposes?

Jayden and Chloe Harper are husband and wife and use the calendar year for tax purposes.

Match the statements that relate to each other.Note: Choice L may be used more than once.

During 2012, Addison has the following gains and losses:

For 2012, Stuart has a short-term capital loss, a collectible long-term capital gain, and a long-term capital gain from land held as investment.The short-term loss is first applied to the collectible capital gain.

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.

Derek, age 46, is a surviving spouse.If he has itemized deductions of $12,100 for 2012, Derek should not claim the standard deduction.

After Carolyn moves out of the apartment she had rented as her personal residence, she recovers her damage deposit of $500.The $500 is income to Carolyn.

For the qualifying relative category (for dependency exemption purposes) :

Pedro is married to Consuela, who lives with him.Both are U.S.citizens and residents of Nebraska.Pedro furnishes all of the support of his parents, who are citizens and residents of Mexico.He also furnishes all of the support of Consuela's parents, who are citizens and residents of El Salvador.Consuela has no gross income for the year.If Pedro files as a married person filing separately, how many personal and dependency exemptions can he claim on his return?

A qualifying child cannot include:

The kiddie tax does not apply as to a child whose earned income is more than one-half of his or her support.

During the current year, Doris received a large gift from her parents and a sizeable inheritance from an uncle. She also paid premiums on an insurance policy on her life. Doris is confused because she cannot find any place on Form 1040 to report these items. Explain.

During 2012, Jen (age 66) furnished more than 50% of the support of the following persons: Presuming all other dependency tests are met, on a separate return how many personal and dependency exemptions may Jen claim?

Deductions for AGI are often referred to as "above-the-line" or "page 1" deductions.Explain.

In which, if any, of the following situations will the kiddie tax not apply?