Question 1

Edward, a widower whose wife died in 2011, maintains a household for himself and his daughter who qualifies as his dependent. Edward's most favorable filing status for 2014 is

Accepted Answer

Edward can file as head of household because he is unmarried and maintains a household for his dependent daughter. Surviving spouse is not an option because he cannot have filed as married filing jointly in the year his wife passed away (2011).

Question 2

In October 2013, Joy and Paul separated and have not lived with each other since, but they are still legally married. They do not file a joint return. Joy supports their children after the separation and pays the cost of maintaining their home. Joy's filing status in 2013 and 2014 is, respectively,

Accepted Answer

Joy and Paul are still legally married but living separately. As Joy is the one supporting the children and paying for the home maintenance, she may qualify for the head of household filing status. Therefore, in 2013, she should file as married filing separately, and in 2014, she should file as head of household since she meets the requirements of this status.

Question 3

Liz and Bert divorce and Liz receives custody of their child. Bert is ordered by the court to pay child support of $10,000 per year, and Liz agrees in writing to allow Bert to claim the dependency exemption for the child. If Liz maintains the home in which she and her child live, her filing status and exemptions claimed will be

Accepted Answer

Liz can file as head of household if she provided more than half of the cost for maintaining her home and if her child lived with her for more than half of the year. She can claim one exemption for herself, and Bert is not eligible to claim the child as a dependent since he agreed to allow Liz to do so. Therefore, Liz can claim one exemption for her child, making the total exemptions claimed equal to two.

Question 4

Ray is starting a new business and trying to decide between a C corporation, S corporation and partnership. Which of the following statements regarding his decision is correct?

Accepted Answer

Partners in a partnership are taxed on their share of partnership income, and the partnership itself does not pay taxes. This may be the best choice for Ray if he wants to have shared ownership and control with others. However, he should also consider liability protection and the ease of raising capital.

Question 5

Elise, age 20, is a full-time college student with earned income from wages of $4,400 and interest income of $500. Elise's parents provide more than half of her support. Elise's taxable income is

Accepted Answer

The answer of Elise, age 20, is a full-time college...

Question 6

A corporation has revenue of $350,000 and deductible business expenses of $240,000. What is the federal income tax, before credits?

Accepted Answer

C)Taxable income is $110,000 ($350,000 - $240,000).The tax liability is $22,250 plus $3,900 [.39 × 10,000] = $26,150.

Question 7

Sally divorced her husband three years ago and has not remarried. Since the divorce she has maintained her home in which she and her now sixteen-year-old daughter reside. The daughter is a qualified child. Sally signed the dependency exemption over to her ex-spouse. What is Sally's filing status for the current year and how many exemptions may she claim?

Accepted Answer

Since Sally is unmarried, has a qualified child living with her for more than half of the year, and pays for more than half of the household expenses, she qualifies as head of household. Therefore, she can claim one exemption for herself and one for her daughter.

Question 8

Michelle, age 20, is a full-time college student with earned income from wages of $5,200 and interest income of $700. Michelle's parents provide more than half of Michelle's support. Michelle's taxable income is

Accepted Answer

Michelle's standard deduction for 2020 is $12,400. Since her taxable income consists only of earned income and interest income, and the total is below her standard deduction, her taxable income is $0. However, since Michelle's parents provide more than half of her support, they may be able to claim her as a dependent.

Question 9

The filing status in which the rates increase most rapidly is

Accepted Answer

C)The rates on the married filing a separate return schedule increases more rapidly than other individual rate schedules.

Question 10

Which of the following dependent relatives does not have to live in the same household as the taxpayer who is claiming head of household filing status?

Accepted Answer

The answer of Which of the following dependent relatives does...

Question 11

Vincent, age 12, is a dependent of his parents. During 2014, Vincent's earned income from wages is $2,600 and Vincent received $3,000 of interest income. The parent's marginal rate is 28% and Vincent's marginal rate is 10%. Vincent's tax is

Accepted Answer

The answer of Vincent, age 12, is a dependent of...

Question 12

In order to qualify to file as surviving spouse, all of the following criteria must be met by the widow or widower except

Accepted Answer

The answer of In order to qualify to file as...

Question 13

To qualify as an abandoned spouse, the taxpayer is not required to

Accepted Answer

The answer of To qualify as an abandoned spouse, the...

Question 14

A married taxpayer may file as head of household under the abandoned spouse provisions if all of the following are met except

Accepted Answer

The correct criteria for filing as head of household under the abandoned spouse provisions include living apart from the spouse for the last six months of the year, being a U.S. citizen or resident, and paying over half of the cost of maintaining a household in which a dependent son or daughter lives for over half of the year. There is no requirement that the taxpayer must have been married for at least two years to qualify for this status.

Question 15

The oldest age at which the "Kiddie Tax" could apply to a dependent child is

Accepted Answer

The answer of The oldest age at which the "Kiddie...

Question 16

If an individual with a marginal tax rate of 15% has a long-term capital gain, it is taxed at

Accepted Answer

A)Taxpayers with a marginal tax rate of 15% or lower will have a 0% tax rate on long-term capital gains.

Question 17

Keith, age 17, is a dependent of his parents. During 2014, he received $3,000 of dividend income. The parent's marginal rate is 28% and Keith's rate is 10%. Keith's tax is

Accepted Answer

Keith's tax on the $3,000 of dividend income would be calculated at his lower tax rate of 10%, resulting in a tax of $300. However, since Keith is a dependent and the parents' marginal rate is higher at 28%, they may have to pay an additional tax on the dividend income as part of their own tax liability.

Question 18

Dave, age 59 and divorced, is the sole support of his mother age 83, who is a resident of a local nursing home for the entire year. Dave's mother had no income for the year. Dave's filing status and exemptions claimed are

Accepted Answer

Dave can claim his mother as a Qualifying Relative and as a dependent, which allows him to claim two exemptions – one for himself and one for his mother. The fact that his mother is a resident of a nursing home for the entire year does not prevent him from claiming her as a dependent. Head of household status is appropriate if Dave paid more than half the cost of keeping up a home for himself and his mother, and he and his mother have lived in the same household for more than half the year.

Question 19

Frank, age 17, received $4,000 of dividends and $1,500 from a part-time job. Frank is a dependent of his parents who are in the 28% percent bracket. Frank's taxable income is

Accepted Answer

First, we need to determine Frank's total income: 
$4,000 (dividends) + $1,500 (part-time job) = $5,500

Since Frank is a dependent of his parents, we need to look at the tax brackets for dependents. For 2019, the standard deduction for dependents is $1,100. This means that Frank's taxable income is: 
$5,500 - $1,100 = $4,400

Next, we need to determine the tax on Frank's taxable income. For simplicity, we'll assume that all of Frank's income falls into the 10% tax bracket for dependents. This means his tax liability is: 
$1,100 × 10% = $110

However, Frank's parents are in the 28% tax bracket, which means they can claim Frank's income on their tax return and benefit from a lower tax rate. To determine their tax savings, we need to calculate the difference in tax liability between the 10% and 28% tax brackets: 
$1,100 × (28% - 10%) = $198

This means that Frank's parents will save $198 on their taxes by claiming Frank as a dependent. Therefore, Frank's taxable income is actually: 
$4,400 - $198 = $4,202

Since none of the answer choices match this amount exactly, we need to look at the closest option. Option D, $3,650, is too low since it doesn't even account for Frank's dividends. Option C, $4,500, is too high since it includes Frank's standard deduction, which has already been accounted for. Therefore, option B, $4,000, is the only feasible option, even though it doesn't take into account the tax savings for Frank's parents.

Question 20

Satish, age 11, is a dependent of his parents. His only source of income for the year is $3,000 of interest income on bonds given him by his grandparents. Satish's marginal rate is 10%, and his parent's marginal rate is 28%. Satish's tax is

Accepted Answer

The answer of Satish, age 11, is a dependent of...

Quiz 2: Determination of Tax