Question 1

Kate is single and a homeowner. In 2014, she has property taxes on her home of $3,000, makes charitable contributions of $2,000, and pays home mortgage interest of $7,000. Kate's adjusted gross income for 2014 is $77,000.
Required: Compute her taxable income for 2014.

Accepted Answer

The answer of Kate is single and a homeowner. In...

Question 2

Lester, a widower qualifying as a surviving spouse, has $209,000 of salary, five personal and dependency exemptions and itemizes deductions. Lester must use which form to report his taxable income?
A)Form 1040ES
B)Form 1040EZ
C)Form 1040A
D)Form 1040

Accepted Answer

Lester must use Form 1040 to report his taxable income since he itemizes deductions and has a higher income level. Form 1040EZ is for taxpayers without dependents with income less than $100,000 and who take the standard deduction. Form 1040A is for taxpayers with income less than $100,000, who do not itemize deductions, and who only have certain types of income. Form 1040ES is used to make estimated tax payments throughout the year.

Question 3

Steve Greene, age 66, is divorced with no dependents. In 2014 Steve had income and expenses as follows:
  Compute Steve's taxable income for 2014. Show all calculations.

Accepted Answer

The answer of Steve Greene, age 66, is divorced with...

Question 4

Bill and Tessa have two children whom they support and who live in their home. Timmy is 17 and has earned income of $5,000 for the year. Their other child, Tommy, is 15. Tessa's mother also lives with them and may be claimed as their dependent. She is 89 years old. Their adjusted gross income is $130,000.
Required: Compute Bill and Tessa's taxable income for 2014 if they file a joint return and they do not itemize deductions.

Accepted Answer

The answer of Bill and Tessa have two children whom...

Question 5

Sean and Martha are both over age 65 and Martha is considered blind by tax law standards. Their total income in 2014 from part-time jobs and interest income from a bank savings account is $60,000. Their itemized deductions are $12,000.
Required: Compute their taxable income.

Accepted Answer

The answer of Sean and Martha are both over age...

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, filing separately could benefit the couple as the spouse with higher income will not be able to claim the medical expenses as a deduction if they file jointly.

B) If a couple is separated and contemplating divorce, it may be advantageous to file separately to avoid any potential liability or complications.

C) If one spouse can be held responsible for the entire tax liability, filing separately may protect the other spouse from being responsible for any tax underpayment or penalties.

Question 7

Maxine, who is 76 years old and single, is appropriately claimed as a dependent on her daughter Beth's tax return. During 2014 she received $500 interest on a savings account. She had a part time job that earned $3,000. Her total itemized deductions were $1,300.
Required: Compute Maxine's taxable income for 2014. Show all calculations.

Accepted Answer

The answer of Maxine, who is 76 years old and...

Question 8

Rena and Ronald, a married couple, each earn a salary of $200,000. They will be required to pay additional payroll taxes in 2014 of
A)$0.
B)$1,350.
C)$1,800.
D)$5,800.

Accepted Answer

Payroll taxes includes Social Security tax (6.2%) and Medicare tax (1.45%). For 2014, Social Security tax is only paid on the first $117,000 of income, so both Rena and Ronald will pay the maximum of $7,254 each. They will also pay Medicare tax on their entire income, for a total of $5,800 ($200,000 x 2 x 1.45%). Their total additional payroll taxes will be $7,254 + $5,800 = $13,054. However, since they each earn $200,000, they are subject to the additional Medicare tax of 0.9% on income above $200,000. This will only affect them on $200,000 - $117,000 = $83,000 of income each, for a total additional Medicare tax of $1,350 ($83,000 x 2 x 0.9%). Therefore, the correct answer is B, $1,350.

Question 9

Form 4868, a six-month extension of time to file, allows a taxpayer to
A)avoid interest on underpayment of taxes due.
B)extend the filing date of the return as well as payment of the tax due.
C)extend the filing date of the return but the estimated amount of tax due must still be paid by the original due date of the return.
D)extend the filing date only at the discretion of the IRS.

Accepted Answer

Form 4868 allows a taxpayer to extend the filing date of the return, but the estimated amount of tax due must still be paid by the original due date of the return. This option avoids a failure-to-file penalty, but not interest charges on unpaid taxes.

Question 10

The following information is available for Bob and Brenda Horton, a married couple filing a joint return, for 2014. Both Bob and Brenda are age 32 and have no dependents.
   a. What is the amount of their gross income?
b. What is the amount of their adjusted gross income?
c. What is the amount of their taxable income?
d. What is the amount of their tax liability (gross tax)?
e. What is the amount of their tax due or (refund due)?

Accepted Answer

The answer of The following information is available for Bob...

Question 11

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

In order to shift the taxation of dividend income from a parent to a child, the parent must transfer 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 does not transfer ownership of the stock and therefore will not shift the taxation.

Question 12

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 three conditions (A, B, and C) must apply for a taxpayer to be eligible for innocent spouse relief. The understated tax must be due to erroneous items of the other spouse, the innocent spouse must not have known or had reason to know about the understatement, and it must be unfair to hold them responsible for the tax.

Question 13

The following information for 2014 relates to Emma Grace, a single taxpayer, age 18:
  a. Compute Emma Grace's taxable income assuming she is self-supporting.
b. Compute Emma Grace's taxable income assuming she is a dependent of her parents.

Accepted Answer

The answer of The following information for 2014 relates to...

Question 14

Adam attended college for much of 2014, during which time he was supported by his parents. Erin married Adam in December 2014. They live in a common law state. Adam graduated and will commence work in January 2015. Erin worked during 2014 and earned $20,000. Adam's only income was interest of $1,100. Adam's parents are in the 28% tax bracket. Thus, claiming Adam as a dependent would save them $1,106 ($3,950 × .28).
a. What is Erin and Adam's tax liability if they file a joint return?
b. What is Erin and Adam's total tax liability if they file separate returns and Adam's parents claim him as a dependent?

Accepted Answer

The answer of Adam attended college for much of 2014,...

Question 15

Shane and Alyssa (a married couple)have AGI of $345,050 in 2014. 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)$12,200.
B)$22,500.
C)$19,900.
D)$21,300.

Accepted Answer

The couple can deduct their mortgage interest expense ($16,000) and property taxes ($6,500), for a total itemized deduction of $22,500. However, since their AGI is over the phase-out threshold ($305,050 for married filing jointly), their itemized deductions will be reduced by 3% of the excess amount over the threshold. In this case, their excess amount is $40,000 ($345,050 AGI - $305,050 threshold) and 3% of $40,000 is $1,200. Therefore, their total deduction from AGI will be $22,500 - $1,200 = $21,300.

Question 16

Hannah is single with no dependents and has a salary of $102,000 for 2014, along with tax exempt interest income of $3,000 from a municipality. Her itemized deductions total $6,600.
Required: Compute her taxable income

Accepted Answer

The answer of Hannah is single with no dependents and...

Question 17

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.

Question 18

Lila and Ted are married and have AGI of $332,000 in 2014. They had their first children this year, twins. Lila and Ted will be allowed a deduction for personal and dependency exemptions of
A)$7,900.
B)$15,800.
C)$12,324.
D)$3,476.

Accepted Answer

The answer of Lila and Ted are married and have...

Question 19

Eliza Smith's father, Victor, lives with Eliza who is a single taxpayer. During the year, Eliza purchased clothing for her father costing $1,200 and provided him with a room that could have been rented for $6,000. In addition, Eliza spent $4,000 for groceries she shared with her father. Eliza purchased a new television for $900 which she placed in the living room for both her father and her use.
What is the amount of support provided by Eliza to her father?

Accepted Answer

The answer of Eliza Smith's father, Victor, lives with Eliza...

Question 20

In 2014, Sam is single and rents an apartment for which he pays $800 per month and makes charitable contributions of $1,000. Sam's adjusted gross income is $47,000.
Required: Compute his taxable income. Show all calculations.

Accepted Answer

The answer of In 2014, Sam is single and rents...

Quiz 2: Determination of Tax

Kate is single and a homeowner. In 2014, she has property taxes on her home of $3,000, makes charitable contributions of $2,000, and pays home mortgage interest of $7,000. Kate's adjusted gross income for 2014 is $77,000. Required: Compute her taxable income for 2014.

Lester, a widower qualifying as a surviving spouse, has $209,000 of salary, five personal and dependency exemptions and itemizes deductions. Lester must use which form to report his taxable income?

Steve Greene, age 66, is divorced with no dependents. In 2014 Steve had income and expenses as follows: Compute Steve's taxable income for 2014. Show all calculations.

Sean and Martha are both over age 65 and Martha is considered blind by tax law standards. Their total income in 2014 from part-time jobs and interest income from a bank savings account is $60,000. Their itemized deductions are $12,000. Required: Compute their taxable income.

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

Rena and Ronald, a married couple, each earn a salary of $200,000. They will be required to pay additional payroll taxes in 2014 of

Form 4868, a six-month extension of time to file, allows a taxpayer to

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

A taxpayer can receive innocent spouse relief if

The following information for 2014 relates to Emma Grace, a single taxpayer, age 18: a. Compute Emma Grace's taxable income assuming she is self-supporting. b. Compute Emma Grace's taxable income assuming she is a dependent of her parents.

Shane and Alyssa (a married couple) have AGI of $345,050 in 2014. 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

Hannah is single with no dependents and has a salary of $102,000 for 2014, along with tax exempt interest income of $3,000 from a municipality. Her itemized deductions total $6,600. Required: Compute her taxable income

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

Lila and Ted are married and have AGI of $332,000 in 2014. They had their first children this year, twins. Lila and Ted will be allowed a deduction for personal and dependency exemptions of

In 2014, Sam is single and rents an apartment for which he pays $800 per month and makes charitable contributions of $1,000. Sam's adjusted gross income is $47,000. Required: Compute his taxable income. Show all calculations.