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Exam 3: Computing the Tax

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Question 81

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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.

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Gifts and inheritances are exclusions fr...

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Question 82

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Under the income tax formula, a taxpayer must choose between deductions for AGI and the standard deduction.

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B) False

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Question 83

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For dependents who have income, special filing requirements apply.

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

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.

In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?

For the past few years, Corey's filing status has been as follows: 2010 (married/joint); 2011 (married/separate); 2012 (surviving spouse); 2013 (surviving spouse); and 2014 (head of household). Explain what probably has happened.

As opposed to itemizing deductions from AGI, the majority of individual taxpayers choose the standard deduction.

The additional standard deduction for age and blindness is greater for married taxpayers than for single taxpayers.

Ellen, age 12, lives in the same household with her father, grandfather, and uncle. The cost of maintaining the household is provided by her grandfather (40%) and her uncle (60%) . Disregarding tie-breaker rules, Ellen is a qualifying child as to:

In terms of timing as to any one year, the Tax Tables are available before the Tax Rate Schedules.

Katelyn is divorced and maintains a household in which she and her daughter, Crissa, live. Crissa, age 22, earns $11,000 during 2014 as a model. Katelyn does not qualify for head of household filing status.

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.

Kyle and Liza are married and under 65 years of age. During 2014, 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 2013. 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, 2014, at age 90, has for many years qualified as their dependent. How many personal and dependency exemptions should Kyle and Liza claim?

For 2014, 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.

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

Match the statements that relate to each other. Note: Choice L may be used more than once. -Resident of Canada or Mexico

During the year, Irv had the following transactions: $\begin{array}{llr} \text {Long-term loss on the sale of business use equipment } &\$7,000\\ \text { Long-term loss on the sale of personal use camper} &6,000\\ \text {Long-term gain on the sale of personal use boat } &3,000\\ \text { Short-term loss on the sale of stock investment } &4,000\\ \text {Long-term loss on the sale of land investment } &5,000\\\end{array}$ How are these transactions handled for income tax purposes?

When filing their Federal income tax returns, the Youngs always claimed the standard deduction. After they purchased a home, however, they started to itemize their deductions from AGI. a. Explain the reason for the change. b. Suppose they purchased the home in November 2013, but did not start itemizing until tax year 2014. Why the delay as to itemizing?

Match the statements that relate to each other. Note: Choice L may be used more than once. -$1,000