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

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Question 31

Multiple Choice

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

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.

M) D) and E)
N) F) and J)

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Question 32

True/False

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Using borrowed funds from a mortgage on her home,Leah provides 52% of her own support,while her sons furnished the rest.Leah can be claimed as a dependent under a multiple support agreement.

A) True
B) False

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Question 33

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

During 2014,Madison had salary income of $80,000 and the following capital transactions: $\begin{array} { l r } \text { LTCG } & \$ 13,000 \\\text { LTCL } & 15,000 \\\text { STCG } & 13,000 \\\text { STCL } & 6,000 \\\end{array}$ How are these transactions handled for income tax purposes?

Roy and Linda were divorced in 2013.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 2014.

In 2014,Cindy had the following transactions: $\begin{array} { l } \text { Salary}&\$90,000\\ \text {Short-term capital gain from a stock investment }&4,000\\ \text { Moving expense to change jobs}&(11,000) \\ \text {Received repayment of \$ 20,000 loan she made to her sister in 2010 (includes no interest) }&20,000\\ \text {State income taxes }&(5,000) \\\\ \text {Cindy's AGT is. }&\\\end{array}$

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

Mr.Lee is a citizen and resident of Hong Kong,while Mr.Anderson is a citizen and resident of the U.S.In the taxation of income,Hong Kong uses a territorial approach,while the U.S.follows the global system.In terms of effect,explain what this means to Mr.Lee and Mr.Anderson.

In applying the gross income test in the case of dependents that are married,could the application of community property laws have any effect? Explain.

Regarding dependency exemptions,classify each statement in one of the four categories: -A nephew who lives with taxpayer.

In resolving qualified child status for dependency exemption purposes,why are tiebreaker rules necessary? Can these rules be waived?

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 2014,can they later switch to separate returns for 2014? b.If the Harpers file separate returns for 2014,can they later switch to a joint return for 2014?

Kim,a resident of Oregon,supports his parents who are residents of Canada but citizens of Korea.Kim can claim his parents as dependents.

Adjusted gross income (AGI)appears at the bottom of page 1 and at the top of page 2 of Form 1040.

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.

The basic and additional standard deductions both are subject to an annual adjustment for inflation.

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?

In satisfying the support test and the gross income test for claiming a dependency exemption,a scholarship received by the person being claimed is handled the same way for each test.Do you agree or disagree with this statement? Why?

Currently,the top income tax rate in effect is not the highest it has ever been.

In 2014,Ashley earns a salary of $55,000,has capital gains of $3,000,and receives interest income of $5,000.Her husband died in 2013.Ashley has a dependent son,Tyrone,who is age 8.Her itemized deductions are $9,000. a.Calculate Ashley's taxable income for 2014. b.What is her filing status?