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

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Question 81

Multiple Choice

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Regarding the tax formula and its relationship to Form 1040, which, if any, of the following statements is correct?

A) Most exclusions from gross income are reported on page 2 of Form 1040.
B) An "above the line deduction" refers to a deduction from AGI.
C) A "page 1 deduction" refers to a deduction for AGI.
D) The taxable income (TI) amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040.
E) None of these.

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

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Question 82

Multiple Choice

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Which, if any, of the following is a deduction for AGI?

A) Contributions to a traditional Individual Retirement Account.
B) Child support payments.
C) Funeral expenses.
D) Loss on the sale of a personal residence.
E) Medical expenses.

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

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Question 83

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When married persons file a joint return, joint and several liability results. What does this mean?

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

Clara, age 68, claims head of household filing status. If she has itemized deductions of $10,500 for 2017, she should claim the standard deduction.

During 2017, Addison has the following gains and losses: ​ a.How much is Addison's tax liability if she is in the 15% tax bracket? b.If her tax bracket is 33% (not 15%)?

Taylor had the following transactions for 2017: What is Taylor's AGI for 2017?

Regarding dependency exemptions, classify each statement in one of the four categories: a.Could be a qualifying child. b.Could be a qualifying relative. c.Could be either a qualifying child or a qualifying relative. d.Could be neither a qualifying child nor a qualifying relative. -A cousin who does not live with taxpayer.

Match the statements that relate to each other. Note: Some choices 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. -Multiple support agreement

Regarding dependency exemptions, classify each statement in one of the four categories: a.Could be a qualifying child. b.Could be a qualifying relative. c.Could be either a qualifying child or a qualifying relative. d.Could be neither a qualifying child nor a qualifying relative. -A family friend who is supported by and lives with the taxpayer.

Claude's deductions from AGI exceed the standard deduction allowed for the current year. Under these circumstances, Claude cannot claim the standard deduction.

Regarding dependency exemptions, classify each statement in one of the four categories: a.Could be a qualifying child. b.Could be a qualifying relative. c.Could be either a qualifying child or a qualifying relative. d.Could be neither a qualifying child nor a qualifying relative. -A stepdaughter who does not live with taxpayer.

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.

Meg, age 23, is a full-time law student and is claimed by her parents as a dependent. During 2017, she received $1,400 interest income from a bank savings account and $6,100 from a part-time job. What is Meg's taxable income for 2017?

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

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. -Tax Rate Schedule

A qualifying child cannot include:

Under the Federal income tax formula for individuals, the determination of adjusted gross income (AGI) precedes that of taxable income (TI).

Contrast the tax consequences resulting from the following filing status situations: a.Married filing jointly versus married filing separately. b.Married filing separately versus single. c.Married filing separately versus abandoned spouse status.

In order to claim a dependency exemption for other than a qualifying child, a taxpayer must meet the support test. Generally, this is done by furnishing more than 50% of a dependent's support. What exceptions exist, if any, where the support furnished need not be more than 50%?