Question 1

Charishma is a taxpayer with taxable income exceeding $500,000.She sells a stock for a $50,000 gain.She acquired the stock 13 months earlier.The gain will be taxed at a total tax rate of 20%.

Accepted Answer

In addition to the higher 20% long-term capital gain rate,she will also pay the additional 3.8% tax on investment income that applies to higher-income taxpayers.

Question 2

Mr.and Mrs.Kusra are in the top tax bracket.They have just had a baby.The Kusras plan to gift a corporate bond they currently own to the baby.The bond pays $2,100 of interest income per year.The Kusra family overall will save taxes if the bond is transferred to the child.

Accepted Answer

Kiddie tax ramifications do not apply until the child has earned more than $2,100 of investment income.

Question 3

Ivan Trent,age five,receive $2,900 of dividends per year from a mutual fund he owns; it is his only source of taxable income.Ivan's parents plan to gift a corporate bond they currently own to him.The bond pays $2,100 of interest income per year.The Trent family overall will save taxes if the bond is transferred to the child.

Accepted Answer

The child is subject to kiddie tax because he already receives investment income in excess of the $2,100 threshold.The tax on the interest income from the bond owned by the child will still be taxed at the parents' tax rate.

Question 4

Shane and Alyssa (a married couple)have AGI of $345,000 in 2017.They bought a house this year and paid $16,000 of interest expense on the mortgage and paid $6,500 of property taxes.They will be allowed a deduction from AGI of

Accepted Answer

D)Gross itemized deductions of $22,500 are reduced by $936 [3% × ($345,000 - $313,800)] to $21,564.

Question 5

Avi and Rianna are considering marriage before year-end.They each earn a salary of about $150,000,have some investment income and some itemized deductions.What additional taxes will Avi and Rianna face as a married couple?

Accepted Answer

The answer of Avi and Rianna are considering marriage before...

Question 6

Married couples will normally file jointly.Identify a situation where a married couple may prefer to file separately.

Accepted Answer

D)Responses A,B and C all provide situations where married filing separately may be preferential.

Question 7

Rob is a taxpayer in the top tax bracket,with over a million in taxable income.He plans to sell stock held long term for a $100,000 gain.This sale will result in an increase to his tax liability of

Accepted Answer

D)Tax on capital gain of $20,000 ($100,000 × 20%)+ additional tax on investment income of $3,800 ($100,000 × 3.8%)= $23,800.

Question 8

In order to shift the taxation of dividend income from a parent to a child

Accepted Answer

B)Actual ownership of the asset must transfer to the child.

Question 9

Steve and Jennifer are in the 33% tax bracket for ordinary income and the 15% bracket for capital gains.They have owned several blocks of stock for many years.They are considering the sale of two blocks of stock.The sale of one would produce a gain of $12,000 while the sale of the other would produce a loss of $18,000.For purposes of this problem,ignore personal exemptions,itemized deductions,phase-outs and additional investment taxes.They have no other gains and losses this year.
a.How much tax will they save if they sell the block of stock that produces a loss?
b.How much additional tax will they pay if they sell the block of stock that produces a gain?
c.What will be the impact on their taxes if they sell both blocks of stock?

Accepted Answer

The answer of Steve and Jennifer are in the 33%...

Question 10

Brett,a single taxpayer with no dependents,earns salary of $500,000 and dividend income of $50,000.Itemized deductions for home mortgage interest,property taxes and charitable contributions total $35,000.Calculate Brett's total federal income tax liability for 2017.

Accepted Answer

The answer of Brett,a single taxpayer with no dependents,earns salary...

Question 11

Mia is a single taxpayer with projected AGI of $275,000 in 2017.She is considering selling a long-term investment before year-end.She expects to realize a gain of $25,000.If Mia sells the investment by December 31,her 2017 taxable income will increase by $25,000.

Accepted Answer

The recognition of the gain will cause Mia's AGI to exceed the threshold for both the personal exemption and itemized deduction phase-outs so her taxable income will increase by more than $25,000.

Question 12

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 13

A taxpayer can receive innocent spouse relief if

Accepted Answer

D)All of the items are required for innocent spouse relief.

Question 14

A married couple in the top tax bracket has a new baby.Due to the birth of the baby their taxable income will be reduced in 2017 by $4,050.

Accepted Answer

Taxpayers in the top tax bracket will have AGIs exceeding $313,800 so the personal and dependency exemption phase-out will apply.

Question 15

If an individual with a marginal tax rate of 25% has a long-term capital gain,it is taxed at

Accepted Answer

D)Taxpayers with a marginal tax rate between 25% and 35% will have a 15% tax rate on long-term capital gains.

Question 16

Generally,when a married couple files a joint return,each spouse is liable for one-half of the entire tax and any penalties incurred.

Accepted Answer

Joint liability applies for the full tax.

Question 17

Rena and Ronald,a married couple,each earn a salary of $200,000.They will be required to pay additional payroll taxes in 2017 of

Accepted Answer

B).009 × ($400,000 combined earned income - $250,000 threshold)= $1,350.

Question 18

Lila and Ted are married and have AGI of $340,000 in 2017.They had their first children this year,twins.Lila and Ted will be allowed a deduction for personal and dependency exemptions of

Accepted Answer

C)
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Question 19

A taxpayer is able to change his filing status from married filing jointly to married filing separately by filing an amended return.

Accepted Answer

Taxpayers are not able to change their status from filing a joint return to separate returns although they can change their status from separate returns to a joint return by filing an amended return.

Question 20

If an individual with a marginal tax rate of 39.6% has a long-term capital gain,it is taxed at

Accepted Answer

B)Taxpayers with a marginal tax rate of 39.6% will have a 20% tax rate on long-term capital gains.

Quiz 18: Determination of Tax