Question 1

John, a widower of four years who is supporting his two young (under age 19) daughters, will have a larger standard deduction in 2012 than will Kate, who is single and sharing an apartment with two friends.

Accepted Answer

This is true because John qualifies for the higher standard deduction for a head of household, which is larger than the standard deduction for a single person like Kate.

Question 2

The standard deduction is an amount that one deducts in addition to one's itemized deductions.

Accepted Answer

The standard deduction is an amount that taxpayers can subtract from their income before income tax is applied, used instead of itemizing deductions. If you take the standard deduction, you cannot also itemize deductions.

Question 3

V is single for tax purposes, has itemized deductions totaling $5,600 and is entitled to one $3,800 exemption deduction for 2012.V should itemize her deductions in 2012.

Accepted Answer

For 2012, the standard deduction for a single filer was $5,950, which is higher than V's itemized deductions of $5,600. Therefore, V would benefit more from taking the standard deduction rather than itemizing.

Question 4

The partnership entity does not pay a Federal income tax on its taxable income.

Accepted Answer

Partnerships are pass-through entities, which means that the income or losses the partnership generates are passed through to the partners to report on their individual income tax returns. Therefore, the partnership itself does not pay a Federal income tax on its taxable income.

Question 5

The income of a child under age 19 is taxed to the parent.

Accepted Answer

A child's income is taxed to the child, not the parent, although certain rules may require a parent to include a child's income on their return if it consists of investment income above a certain threshold. This is known as the "kiddie tax."

Question 6

For 2012, the highest income tax rate for corporations with the highest incomes is the same as the highest marginal individual income tax rate.

Accepted Answer

In 2012, both the highest income tax rate for corporations with the highest incomes and the highest marginal individual income tax rate were 35%.

Question 7

Citizens and residents of the United States generally are taxed on income earned in a foreign country.

Accepted Answer

The United States taxes its citizens and residents on worldwide income, including income earned in foreign countries.

Question 8

A single taxpayer will pay the same amount of tax (or less) as a head of household when their taxable incomes are equal.

Accepted Answer

A head of household typically pays less in taxes compared to a single taxpayer with the same taxable income due to more favorable tax brackets and a higher standard deduction.

Question 9

B and D are beneficiaries of a trust that distributed $6,000 out of its taxable earnings to each of them in 20X0.The trust had $11,000 of taxable net income in 20X0.The trust is not required to pay income tax for 20X0.

Accepted Answer

The trust is not required to pay income tax for 20X0, so the beneficiaries are not required to include the distribution in their taxable income.

Question 10

Gross income is total income before subtracting exclusions.

Accepted Answer

Gross income is total income after subtracting exclusions but before subtracting deductions.

Question 11

A corporation is generally entitled to an income tax deduction for cash dividends paid to shareholders because the shareholders are required to include the dividend in gross income.

Accepted Answer

Corporations are not entitled to a deduction for dividends paid to shareholders; instead, dividends are paid out of the corporation's after-tax profits, and shareholders must include them in their gross income.

Question 12

A corporation does not distinguish between deductions for adjusted gross income and itemized deductions.

Accepted Answer

A corporation does not have itemized deductions. All deductions are taken from gross income to arrive at taxable income.

Question 13

The sole proprietorship business of an individual taxpayer is treated as a separate entity for tax purposes.

Accepted Answer

A sole proprietorship is not a separate legal entity from the individual who owns and operates it, so it is not treated as a separate entity for tax purposes. Instead, the income and expenses of the business are reported on the owner's personal income tax return.

Question 14

F operates his computer repair business as a sole proprietorship.His sole proprietorship's taxable income is subject to tax using the corporate tax rates since it is a business.

Accepted Answer

As a sole proprietorship, the taxable income would be reported on F's personal tax return using individual tax rates, not corporate tax rates.

Question 15

An increase in adjusted gross income can cause a decrease in certain otherwise allowable itemized deductions.

Accepted Answer

This is true. Certain itemized deductions, such as miscellaneous itemized deductions subject to the 2% of AGI limit, are reduced by 3% of the amount by which the taxpayer's AGI exceeds a certain threshold. Therefore, as AGI increases, these deductions may be reduced or eliminated.

Question 16

A partnership is taxed at the same rates as estates and trusts for Federal income tax purposes.

Accepted Answer

Partnerships are not taxed at the same rates as estates and trusts for Federal income tax purposes. Instead, partnerships are "pass-through" entities, meaning the income is passed through to the partners who then report it on their individual tax returns at their own tax rates. Estates and trusts are taxed according to different sets of rules and rates.

Question 17

All employee business deductions of an individual are deductions for adjusted gross income.

Accepted Answer

Employee business deductions are generally considered miscellaneous itemized deductions and are not deductions for adjusted gross income (AGI). They are taken from AGI to arrive at taxable income if they exceed 2% of AGI, but this was suspended for tax years 2018 through 2025 by the Tax Cuts and Jobs Act.

Question 18

A taxpayer who itemizes receives no special tax break for being 65 years of age or older.

Accepted Answer

Age does not impact the ability to itemize deductions or the tax benefits received from itemizing. However, seniors may be eligible for other tax benefits such as a higher standard deduction and/or a tax credit for elderly or disabled taxpayers.

Question 19

Deductions for adjusted gross income (A.G.I.) can only be deducted if they exceed the standard deduction.

Accepted Answer

Deductions for adjusted gross income (A.G.I.) are taken before the standard deduction, so they can still be deducted even if they do not exceed the standard deduction.

Question 20

An S corporation generally pays no tax on the taxable income it generates.

Accepted Answer

An S corporation does not pay federal income tax on its taxable income. Instead, the income and losses are passed through to the shareholders, and they report the income or loss on their individual tax returns.

Quiz 3: Taxable Entities, Tax Formula, Introduction to Property Transactions