Deck 16: Introduction to the Taxation of Individuals

Question 1

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

Answer 1

False

Question 2

Under the Federal income tax formula for individuals,a choice must be made between claiming deductions for AGI and itemized deductions.

Answer 2

False

Question 3

An increase in a taxpayer's AGI could decrease the amount of charitable contribution that can be claimed.

Answer 3

False

Question 4

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

Question 5

Howard,age 82,dies on January 2,2013.On Howard's final income tax return,the full amount of the basic and additional standard deductions will be allowed even though Howard lived for only 2 days during the year.

Question 6

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

Question 7

After Ellie moves out of the apartment she had rented as her personal residence,she recovers her damage deposit of $1,000.The $1,000 is not income to Ellie.

Question 8

A decrease in a taxpayer's AGI could increase the amount of medical expenses that can be deducted.

Question 9

Clara,age 68,claims head of household filing status.If she has itemized deductions of $10,100 for 2013,she should not claim the standard deduction.

Question 10

In 2013,Ed is 66 and single.If he has itemized deductions of $7,300,he should not claim the standard deduction alternative.

Question 11

The filing status of a taxpayer (e.g.,single,head of household)must be identified before the applicable standard deduction is determined.

Question 12

An "above the line" deduction refers to a deduction for AGI.

Question 13

Derek,age 46,is a surviving spouse.If he has itemized deductions of $12,500 for 2013,Derek should not claim the standard deduction.

Question 14

The basic and additional standard deductions both are subject to an annual adjustment for inflation.

Question 15

Buddy and Hazel are ages 72 and 71 and file a joint return.If they have itemized deductions of $14,300 for 2013,they should not claim the standard deduction.

Question 16

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

Question 17

Lee,a citizen of Korea,is a resident of the U.S.Any rent income Lee receives from land he owns in Korea is not subject to the U.S.income tax.

Question 18

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

Question 19

Jason and Peg are married and file a joint return.Both are over 65 years of age and Jason is blind.Their standard deduction for 2013 is $15,800 ($12,200 + $1,200 + $1,200 + $1,200).

Question 20

Claude's deductions from AGI exceed the standard deduction allowed for 2013.Under these circumstances,Claude cannot claim the standard deduction.

Question 21

Kim,a resident of Oregon,supports his parents who are residents of Canada but citizens of Korea.Kim can claim his parents as dependents.

Question 22

For dependents who have income,special filing requirements apply.

Question 23

Katrina,age 16,is claimed as a dependent by her parents.During 2013,she earned $5,600 as a checker at a grocery store.Her standard deduction is $5,950 ($5,600 earned income + $350).
TRUE

Question 24

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

Question 25

Roy and Linda were divorced in 2012.The divorce decree awards custody of their children to Linda but is silent as to who is entitled to claim them as dependents.If Roy furnished more than half of their support,he can claim them as dependents in 2013.

Question 26

Debby,age 18,is claimed as a dependent by her mother.During 2013,she earned $1,100 in interest income on a savings account.Debby's standard deduction is $1,450 ($1,100 + $350).

Question 27

Benjamin,age 16,is claimed as a dependent by his parents.During 2013,he earned $700 at a car wash.Benjamin's standard deduction is $1,350 ($1,000 + $350).

Question 28

Stealth taxes are directed at lower income taxpayers.

Question 29

For the year a spouse dies,the surviving spouse is considered married for the entire year for income tax purposes.

Question 30

Sarah furnishes more than 50% of the support of her son and daughter-in-law who live with her.If the son and daughter-in-law file a joint return,Sarah cannot claim them as dependents.

Question 31

Lucas,age 17 and single,earns $6,000 during 2013.Lucas's parents cannot claim him as a dependent if he does not live with them.

Question 32

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

Question 33

Butch and Minerva are divorced in December of 2013.Since they were married for more than one-half of the year,they are considered asmarried for 2013.

Question 34

Monique is a resident of the U.S.and a citizen of France.If she files a U.S.income tax return,Monique cannot claim the standard deduction.

Question 35

In determining whether the gross income test is met for dependency exemption purposes,only the taxable portion of a scholarship is considered.

Question 36

Katelyn is divorced and maintains a household in which she and her daughter,Crissa,live.Crissa,age 22,earns $11,000 during 2013 as a model.Katelyn does not qualify for head of household filing status.

Question 37

In determining the filing requirement based on gross income received,both additional standard deductions (i.e.,age and blindness)are taken into account.

Question 38

In terms of income tax consequences,abandoned spouses are treated the same way as married persons filing separate returns.

Question 39

A dependent cannot claim a personal exemption on his or her own return.

Question 40

Darren,age 20 and not disabled,earns $4,000 during 2013.Darren's parents cannot claim him as a dependent unless he is a full-time student.

Question 41

George and Erin are divorced,and George is required to pay Erin $20,000 of alimony each year.George earns $75,000 a year.Erin is required to include the alimony payments in gross income although George earned the income.

Question 42

In 2013,Theresa was in an automobile accident and suffered physical injuries.The accident was caused by Ramon's negligence.In 2014,Theresa collected from his insurance company.She received $15,000 for loss of income,$10,000 for pain and suffering,$50,000 for punitive damages,and $6,000 for medical expenses which she had deducted on her 2013 tax return (the amount in excess of 10% of adjusted gross income).As a result of the above,Theresa's 2014 gross income is increased by $56,000.

Question 43

In December 2013,Emily,a cash basis taxpayer,received a $2,500 cash scholarship for the Spring semester of 2014.However,she did not use the funds to pay the tuition until January 2014.Emily can exclude the $2,500 from her gross income in 2013.

Question 44

Sarah's employer pays the hospitalization insurance premiums for a policy that covers all employees and retired former employees.After Sarah retires,the hospital insurance premiums paid for her by her employer can be excluded from her gross income.

Question 45

After the divorce,Jeff was required to pay $18,000 per year to his former spouse,Darlene,who had custody of their child.Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21.During the year,Jeff paid the $18,000 required under the divorce agreement.Darlene must include the $12,000 in gross income.

Question 46

Ted earned $150,000 during the current year.He paid Alice,his former wife,$75,000 in alimony.Under these facts,the tax is paid by the person who benefits from the income rather than the person who earned the income.

Question 47

Ashley received a scholarship to be used as follows: tuition $6,000; room and board $9,000; and books and laboratory supplies $2,000.Ashley is required to include only $9,000 in her gross income.

Question 48

Workers' compensation benefits are included in gross income if the employer also pays the employee while the employee is recovering from his or her injury.

Question 49

Brooke works part-time as a waitress in a restaurant.For groups of 7 or more customers,the customer is charged 15% of the bill for Brooke's services.For parties of less than 7,the tips are voluntary.Brooke received $11,000 from the groups of 7 or more and $7,000 in voluntary tips from all other customers.Using the customary 15% rate,her voluntary tips would have been only $6,000.Brooke must include $18,000 ($11,000 + $7,000)in gross income.

Question 50

Jacob and Emily were co-owners of a personal residence.As part of their divorce agreement,Emily paid Jacob cash for his interest in the personal residence.This cash payment results in a taxable gain to Jacob if he receives more cash than his share of the cost of the residence.

Question 51

Paula transfers stock to her former spouse,Fred.The transfer is pursuant to a divorce agreement.Paula's cost of the stock was $75,000 and its fair market value on the date of the transfer is $95,000.Fred later sells the stock for $100,000.Fred's recognized gain from the sale of the stock is $5,000.

Question 52

A child who has unearned income of $2,000 or less cannot be subject to the kiddie tax.

Question 53

John told his nephew,Steve,"if you maintain my house when I cannot,I will leave the house to you when I die.Steve maintained the house and when John died Steve inherited the house.The value of the residence can be excluded from Steve's gross income as an inheritance.

Question 54

Since an abandoned spouse is treated as single and has one or more dependent children,he or she qualifies for the standard deduction available to head of household.

Question 55

Once a child reaches age 19,the kiddie tax no longer applies.

Question 56

Agnes receives a $5,000 scholarship which covers her tuition at Parochial High School.She may not exclude the $5,000 because the exclusion applies only to scholarships to attend college.

Question 57

If a lottery prize winner transfers the prize to a qualified government unit or nonprofit organization,then the prize is excluded from the winner's gross income if the amount of the prize does not exceed 30% of the winner's AGI.

Question 58

If a scholarship does not satisfy the requirements for a gift,the scholarship must be included in gross income.

Question 59

The kiddie tax does not apply to a child whose earned income is more than one-half of his or her support.

Question 60

When the kiddie tax applies,the child need not file an income tax return because the child's income will be reported on the parents' return.

Question 61

Employee business expenses for travel qualify as itemized deductions subject to the 2% floor if they are not reimbursed.

Question 62

Upon the recommendation of a physician,Ed has a swimming pool installed at his residence because of a heart condition.If he is allowed to deduct all or part of the cost of the pool,Ed's increase in utility bills due to the operation of the pool qualifies as a medical expense.

Question 63

Leona borrows $100,000 from First National Bank and uses the proceeds to purchase City of Houston bonds.The interest Leona pays on this loan is deductible as investment interest subject to the investment interest limits.

Question 64

Adrienne sustained serious facial injuries in a motorcycle accident.To restore her physical appearance,Adrienne had cosmetic surgery.She cannot deduct the cost of this procedure as a medical expense.

Question 65

Sergio was required by the city to pay $2,000 for the cost of new curbing installed by the city in front of his personal residence.The new curbing was installed throughout Sergio's neighborhood as part of a street upgrade project.Sergio may not deduct $2,000 as a tax,but he may add the $2,000 to the basis of his property.

Question 66

Judy paid $40 for Girl Scout cookies and $40 for Boy Scout popcorn.Judy may claim an $80 charitable contribution deduction.

Question 67

A taxpayer pays points to obtain financing to purchase a second residence.At the election of the taxpayer,the points can be deducted as interest expense for the year paid.

Question 68

For all of the current year,Randy (a calendar year taxpayer)allowed the Salvation Army to use a building he owns rent-free.The building normally rents for $24,000 a year.Randy will be allowed a charitable contribution deduction this year of $24,000.

Question 69

The election to itemize is appropriate when total itemized deductions are less than the standard deduction based on the taxpayer's filing status.

Question 70

Phyllis,a calendar year cash basis taxpayer who itemized deductions,overpaid her 2012 state income tax and is entitled to a refund of $400.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2013.She is required to recognize that amount as income in 2013.

Question 71

Interest paid or accrued during the tax year on aggregate acquisition indebtedness of $2 million or less ($1 million or less for married persons filing separate returns)is deductible as qualified residence interest.

Question 72

Excess charitable contributions that come under the 30%-of-AGI ceiling are always subject to the 30%-of-AGI ceiling in the carryover year.

Question 73

Sadie mailed a check for $2,200 to a qualified charitable organization on December 31,2013.The $2,200 contribution is deductible on Sadie's 2013 tax return.

Question 74

Herbert is the sole proprietor of a furniture store.He can deduct real property taxes on his store building but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.

Question 75

For purposes of computing the deduction for qualified residence interest,a qualified residence includes only the taxpayer's principal residence.

Question 76

Ronaldo contributed stock worth $12,000 to the Children's Protective Agency,a qualified charity.He acquired the stock twenty months ago for $6,000.He may deduct $6,000 as a charitable contribution deduction (subject to percentage limitations).

Question 77

The reduced deduction election enables a taxpayer to move from the 30%-of-AGI limitation to the 50%-of-AGI limitation.

Question 78

In the year of her death,Maria made significant charitable contributions of capital gain property.In fact,the amount of the contributions exceeds 30% of her AGI.Maria's executor can elect to deduct charitable contributions of up to 50% of Maria's AGI on Maria's final income tax return.

Question 79

In April 2013,Bertie,a calendar year cash basis taxpayer,had to pay the state of Michigan additional income tax for 2012.Even though it relates to 2012,for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2013.

Question 80

Georgia contributed $2,000 to a qualifying Health Savings Account in 2013.The entire amount qualifies as an expense deductible for AGI.