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

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Question 51

True/False

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Married taxpayers who file separately cannot later (i.e. ,after the due date for filing)change to a joint return.

A) True
B) False

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Question 52

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

A) True
B) False

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Question 53

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Surviving spouse filing status begins in the year in which the deceased spouse died.

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. -Average income tax rate

During 2016,Sarah had the following transactions: Salary $ 80,000 Interest income on City of Baltimore bonds 1,000 Damages for personal injury (car accident) 100,000 Punitive damages (same car accident) 200,000 Cash dividends from Chevron Corporation stock 7,000 Sarah's AGI is:

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

Kyle and Liza are married and under 65 years of age.During 2016,they furnish more than half of the support of their 19-year old daughter,May,who lives with them.She graduated from high school in May 2015.May earns $15,000 from a part-time job,most of which she sets aside for future college expenses.Kyle and Liza also provide more than half of the support of Kyle's cousin who lives with them.Liza's father,who died on January 3,2016,at age 90,has for many years qualified as their dependent.How many personal and dependency exemptions should Kyle and Liza claim?

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

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

Regarding the Tax Tables applicable to the Federal income tax,which of the following statements is correct?

After her divorce,Hope continues to support her ex-husband's sister,Cindy,who does not live with her.Hope can claim Cindy as a dependent.

During 2016,Trevor has the following capital transactions: LTCG $ 6,000 Long-term collectible gain 2,000 STCG 4,000 STCL 10,000 After the netting process,the following results:

Derek,age 46,is a surviving spouse.If he has itemized deductions of $12,900 for 2016,Derek should not claim the standard deduction.

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

Mel is not quite sure whether an expenditure he made is a deduction for AGI or a deduction from AGI.Since he plans to choose the standard deduction option for the year,does the distinction matter? Explain.

During 2016,Marvin had the following transactions: Salary $50,000 Bank loan (proceeds used to buy personal auto) 10,000 Alimony paid 12,000 Child support paid 6,000 Gift from aunt 20,000 Marvin's AGI is:

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. -Age of a qualifying child

Kyle,whose wife died in December 2013,filed a joint tax return for 2013.He did not remarry,but has continued to maintain his home in which his two dependent children live.What is Kyle's filing status in 2016?

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. -Kiddie tax applies

Adjusted gross income (AGI)sets the ceiling or the floor for certain deductions.Explain and illustrate what this statement means.