Question 1

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 2015 by $4,000.

Accepted Answer

In 2015, the personal exemption amount was $4,000 per person, which could reduce taxable income. However, the exemption was phased out for high-income earners, such as those in the top tax bracket, meaning they might not benefit from it.

Question 2

Oscar and Diane separated in June of this year although they continue to live in the same town.They have twin sons,Blake and Cliff,who remain in the family home with Diane.Oscar's income this year was $45,000 while Diane worked only part-time and made $15,000.Oscar also gambles heavily but told Diane that he had no winnings this year.What tax issues should they consider?

Accepted Answer

The answer of Oscar and Diane separated in June of...

Question 3

Discuss why Congress passed the innocent spouse provision and detail the requirements to be met in order to qualify as an innocent spouse and be relieved of liability for tax on unreported income.

Accepted Answer

The answer of Discuss why Congress passed the innocent spouse...

Question 4

Alexis and Terry have been married five years and file joint tax returns.Alexis began embezzling funds from her employer during the third year of their marriage.Last year,Alexis suddenly left the country and Terry does not know where she is.In the current year,Terry learned that the IRS had assessed him $27,000 in unpaid taxes due to Alexis's embezzlement.What tax issue(s)are present in Terry's situation? What questions would you ask Terry to determine his appropriate response to the IRS?

Accepted Answer

The answer of Alexis and Terry have been married five...

Question 5

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 6

Married couples will normally file jointly.Identify a situation where a married couple may prefer to file separately.
A)The spouse with lower income has substantial medical expenses.
B)A couple is separated and contemplating divorce.
C)One spouse can be held responsible for the entire tax liability.
D)All of the above.

Accepted Answer

A) If the spouse with lower income has substantial medical expenses, it may be best for them to file separately so their medical expenses can qualify as a deduction under the lower income tax brackets. 
B) If a couple is separated and contemplating divorce, they may wish to file separately to keep their finances separate and avoid any potential liability or disputes regarding tax returns. 
C) If one spouse can be held responsible for the entire tax liability, it may be best for the other spouse to file separately to protect their own assets and avoid being held liable for any potential errors or issues with the joint return. Thus, all of these options could lead a married couple to prefer filing separately.

Question 7

In order to shift the taxation of dividend income from a parent to a child,
A)the parent must direct the corporation to pay the dividend to the child.
B)the parent must transfer ownership of the stock to the child.
C)the parent can deposit the dividend in the child's bank account.
D)all of the above will result in shifting the taxation to the child.

Accepted Answer

The only way to shift the taxation of dividend income from a parent to a child is by transferring ownership of the stock to the child. Directing the corporation to pay the dividend to the child or depositing the dividend in the child's bank account may result in gift tax implications for the parent and will not shift the taxation to the child. Therefore, option B is the best choice.

Question 8

Shane and Alyssa (a married couple)have AGI of $345,000 in 2015.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
A)$16,000.
B)$22,500.
C)$14,947.
D)$21,447.

Accepted Answer

The married couple's itemized deductions are limited because their AGI is above the threshold for phase-out. In 2015, the threshold for phase-out is $309,900 for married couples filing jointly.

To calculate the deductible amount, we need to use the lesser of the total itemized deductions or the applicable limit. The applicable limit for this couple is $309,900 + $250, which equals $310,150.

The couple's total itemized deductions are $16,000 + $6,500, which equals $22,500.

Since the applicable limit is lower than the total itemized deductions, we need to adjust for the phase-out.

First, we need to calculate the excess of their AGI over the threshold:

$345,000 - $309,900 = $35,100

Next, we need to divide the excess by $2,500 to get the phase-out percentage:

$35,100 ÷ $2,500 = 14.04%

Finally, we need to multiply the excess by the phase-out percentage and subtract the result from the total itemized deductions:

$35,100 x 14.04% = $4,938.84 
$22,500 - $4,938.84 = $17,561.16

Therefore, the deductible amount is $17,561.16 or rounded to $21,447.

Question 9

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

Accepted Answer

The answer of A taxpayer is able to change his...

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 liabilty for 2015.

Accepted Answer

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

Question 11

Rena and Ronald,a married couple,each earn a salary of $200,000.They will be required to pay additional payroll taxes in 2015 of
A)$0.
B)$1,350.
C)$1,800.
D)$5,800.

Accepted Answer

The additional payroll taxes in 2015 for married couples earning a combined salary of $400,000 is $1,350.

Question 12

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

The answer of Generally,when a married couple files a joint...

Question 13

Lila and Ted are married and have AGI of $337,000 in 2015.They had their first children this year,twins.Lila and Ted will be allowed a deduction for personal and dependency exemptions of
A)$8,000.
B)$16,000.
C)$12,480.
D)$6,240.

Accepted Answer

The personal and dependency exemption in 2015 is $4,000 per eligible person. Since Lila and Ted have two children, they can claim 4 exemptions, which gives them a total deduction of $16,000. However, phase-out rules apply for taxpayers with AGI over certain thresholds. In 2015, the phase-out threshold for married taxpayers filing jointly is $309,900, and the exemption is reduced by 2% for every $2,500 of AGI over the threshold. For Lila and Ted, their AGI exceeds the threshold by $27,100, so their exemption is reduced by 2%*11=$220. Their allowable exemption is $16,000-$220*4=$12,480. Therefore, the correct answer is C.

Question 14

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 15

In 2015 Carol and Robert have salaries of $35,000 and $27,000,respectively.Their itemized deductions total $8,000.They are married,under 65,and live in a common law state.
a.Compute their taxable income assuming that they file a joint return.
b.Compute their taxable income assuming that they file separate returns and that Robert claims all of the itemized deductions.

Accepted Answer

The answer of In 2015 Carol and Robert have salaries...

Question 16

A taxpayer can receive innocent spouse relief if
A)the understated tax is attributable to erroneous items of the other spouse.
B)the innocent spouse did not know and had no reason to know that there was an understatement of tax.
C)under the circumstances,it would be inequitable to hold the innocent spouse liable for the understated tax.
D)All of the above conditions apply.

Accepted Answer

All of the above conditions must apply in order for a taxpayer to receive innocent spouse relief. The understated tax must be attributable to erroneous items of the other spouse, the innocent spouse must not have known or had reason to know of the understatement, and it must be deemed inequitable to hold the innocent spouse liable.

Question 17

Kelsey is a cash-basis,calendar-year taxpayer.Her salary is $30,000,and she is single.She plans to purchase a residence in 2016.She anticipates her property taxes and interest will total $8,000 in 2016.Each year,Kelsey contributes approximately $1,500 to charity.Her other itemized deductions total $2,000.For purposes of this problem,assume 2016 tax rates,exemptions,and standard deductions are the same as 2015.
a.What will her gross tax be in 2015 and 2016 if she contributes $1,500 to charity in each year?
b.What will her gross tax be in 2015 and 2016 if she contributes $3,000 to charity in 2015 but makes no contribution in 2016?
c.What will her gross tax be in 2015 and 2016 if she makes no contribution in 2015 but contributes $3,000 to charity in 2016?
d.Why does alternative "c" yield the lowest tax?

Accepted Answer

The answer of Kelsey is a cash-basis,calendar-year taxpayer.Her salary is...

Question 18

Discuss reasons why a married couple may choose not to file a joint return.

Accepted Answer

The answer of Discuss reasons why a married couple may...

Question 19

Mia is a single taxpayer with projected AGI of $255,000 in 2015.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 2015 taxable income will increase by $25,000.

Accepted Answer

The answer of Mia is a single taxpayer with projected...

Question 20

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
A)$15,000.
B)$20,000.
C)$39,600.
D)$23,800.

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.

Quiz 4: Determination of Tax

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 2015 by $4,000.

Discuss why Congress passed the innocent spouse provision and detail the requirements to be met in order to qualify as an innocent spouse and be relieved of liability for tax on unreported income.

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%.

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

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

Shane and Alyssa (a married couple) have AGI of $345,000 in 2015.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

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

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 liabilty for 2015.

Rena and Ronald,a married couple,each earn a salary of $200,000.They will be required to pay additional payroll taxes in 2015 of

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

Lila and Ted are married and have AGI of $337,000 in 2015.They had their first children this year,twins.Lila and Ted will be allowed a deduction for personal and dependency exemptions of

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?

A taxpayer can receive innocent spouse relief if

Discuss reasons why a married couple may choose not to file a joint return.

Mia is a single taxpayer with projected AGI of $255,000 in 2015.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 2015 taxable income will increase by $25,000.

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