Question 1

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,...

Question 2

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

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 3

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

Accepted Answer

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

Question 4

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 5

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 6

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

Question 7

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 8

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

Accepted Answer

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Question 9

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

Taxpayers in the top tax bracket will have AGIs exceeding $309,900 so the personal and dependency exemption phaseout will apply.

Question 10

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

Accepted Answer

Gross itemized deductions of $22,500 are reduced by $1,053 [3% × ($345,000 - $309,900)] to $21,447.

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

Actual ownership of the asset must transfer to the child.

Question 13

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...

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

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 16

A taxpayer can receive innocent spouse relief if

Accepted Answer

All of the items are required for innocent spouse relief.

Question 17

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 18

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 19

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

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...

Quiz 2: Determination of Tax