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Exam 3: Computing the Tax

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Question 1

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For 2019, 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?

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b. No. Unless taxable income i...

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Question 2

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

A) If a taxpayer dies during the year, his or her standard deduction must be prorated.
B) If a taxpayer is claimed as a dependent of another, his or her additional standard deduction is allowed in full (i.e., no adjustment is necessary) .
C) If spouses file separate returns, both must claim the standard deduction (rather than itemize their deductions from AGI) .
D) If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed.
E) None of these.

F) All of the above
G) A) and D)

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Question 3

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During 2019, Lisa (age 66) furnished more than 50% of the support of the following persons: ∙ Her current husband who has no income and is not claimed by anyone else as a dependent. ∙ Her stepson (age 19) who lives with her and earns $6,000 as a dance instructor. He dropped out of school a year ago. ∙ Her ex-husband who does not live with her. The divorce occurred two years ago. ∙ Her former brother-in-law who does not live with her. Presuming that all other dependency tests are met, on a separate return how many dependents may Lisa claim?

Match the statements that relate to each other. Note: Some choices may be used more than once. -Basic standard deduction

After Ellie moves out of the apartment she had rented as her personal residence, she recovers her damage deposit of $1,000. The $1,000 is not income to Ellie.

When separate income tax returns are filed by married taxpayers, one spouse cannot claim the other spouse as a dependent.

A decrease in a taxpayer's AGI could increase the amount of medical expenses that can be deducted.

During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss. Presuming adequate income, how much of these losses may Kim claim?

After paying down the mortgage on their personal residence, the Hills have found that their itemized deductions for each year are always slightly less than the standard deduction option. a. Explain what has happened. b. What remedy do you suggest?

Once they reach age 65, many taxpayers will switch from itemizing their deductions from AGI and start claiming the standard deduction.

Match the statements that relate to each other. Note: Some choices may be used more than once. -Surviving spouse

Ayla, age 17, is claimed by her parents as a dependent. During 2019, she had interest income from a bank savings account of $2,000 and income from a part-time job of $4,200. Ayla's taxable income is:

During 2019, Enrique had the following transactions: $\begin{array}{lr}\text { Salary } & \$ 70,000 \\\text { Interest income on Xerox bonds } & 2,000 \\\text { Inheritance from uncle } & 40,000 \\\text { Contribution to traditional IRA } & 5,500 \\\text { Capital losses } & 2,500\end{array}$ Enrique's AGI is:

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

Roy and Linda divorced in 2018. The divorce decree awards custody of their children (all under age 17) to Linda but is silent as to who is entitled to treat them as dependents for purposes of claiming the child tax credit. If Roy furnished more than half of their support, he can claim the child tax credit for them in 2019.

Adjusted gross income (AGI) appears on page 2 of Form 1040.

When the kiddie tax applies, the child need not file an income tax return because his or her income will be reported on the parents' return.

In any given year, that year's Tax Tables are released by the IRS before the Tax Rate Schedules for that year.

Once a child reaches age 19, the kiddie tax no longer applies.

The Deweys are expecting to save on their taxes for 2019. Not only have both incurred large medical expenses, but both reached age 65. During the year, they also recognized a $30,000 loss on some land they sold which was purchased as an investment several years ago. Are the Deweys under a mistaken understanding regarding their tax position? Explain.