Question 1

The oldest age at which the "Kiddie Tax" could apply to a dependent child is

Accepted Answer

The answer of The oldest age at which the "Kiddie...

Question 2

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

Accepted Answer

Transferring ownership of the stock to the child is the only option that will result in shifting the taxation of dividend income from the parent 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 does not shift the taxation to the child.

Question 3

In October 2012,Joy and Paul separated and have not lived with each other since,but they are still legally married.They do not file a joint return.Joy supports their children after the separation and pays the cost of maintaining their home.Joy's filing status in 2012 and 2013 is,respectively,

Accepted Answer

Since Joy and Paul are still legally married but not living together, they are considered married for tax purposes. However, since they do not file a joint return, they must file as married filing separately. Joy may also qualify as head of household if she provided more than half of the household expenses and the children lived with her for more than half the year. Therefore, Joy's filing status for 2012 and 2013 is married filing separately and head of household.

Question 4

Ray is starting a new business and trying to decide between a C corporation,S corporation and partnership.Which of the following statements regarding his decision is correct?

Accepted Answer

Since Ray is starting a new business, a partnership may be a good choice as it allows for shared decision-making and profits/losses. Partners in a partnership are taxed on their share of partnership income, meaning Ray would only be taxed on the portion of the profits that he receives. While both C and S corporations offer liability protection, they also have more formal requirements and stricter tax regulations. Plus, with a C corporation, there is the potential for double taxation, meaning the corporation is taxed on its income and then shareholders are taxed on any dividends received. Overall, a partnership may be the most flexible and advantageous option for a new business like Ray's.

Question 5

Frank,age 17,received $4,000 of dividends and $1,500 from a part-time job.Frank is a dependent of his parents who are in the 28% percent bracket.Frank's taxable income is

Accepted Answer

Frank's taxable income would be the sum of his dividends and part-time job income, which is $4,000 + $1,500 = $5,500. However, since he is a dependent of his parents, his standard deduction is limited to $1,100, leaving him with a taxable income of $4,400. Since his parents are in the 28% tax bracket, Frank's tax liability would be $4,400 x 0.10 = $440. Therefore, his taxable income would be $4,400 - $440 = $3,960, which is closest to answer choice D ($3,650).

Question 6

Lila and Ted are married and have AGI of $327,000.They had their first children this year,twins.Lila and Ted will be allowed a deduction for personal and dependency exemptions of

Accepted Answer

For 2023, the personal and dependency exemption is $0 due to the Tax Cuts and Jobs Act. However, if this question is based on a previous year when exemptions were allowed, the phase-out for exemptions begins at $313,800 for married couples filing jointly. The phase-out reduces the exemption amount by 2% for each $2,500 over the threshold. With an AGI of $327,000, Lila and Ted are $13,200 over the threshold, resulting in a 10.56% reduction. The original exemption amount for four people (Lila, Ted, and two children) would be $16,200 ($4,050 each). After the reduction, the exemption is $16,200 - ($16,200 * 10.56%) = $14,486.88, which rounds to $8,736.

Question 7

Keith,age 17,is a dependent of his parents.During 2013,he received $3,000 of dividend income.The parent's marginal rate is 28% and Keith's rate is 10%.Keith's tax is

Accepted Answer

Since Keith's tax rate is lower than his parents' marginal rate, it is more beneficial for Keith to report the dividend income on his own tax return rather than having his parents include it on their tax return. Keith's tax on the $3,000 of dividend income would be $300 (10% of $3,000), while if the parents were to include it on their tax return, the tax would be $840 (28% of $3,000). Therefore, Keith's tax is the better choice and the answer is B.

Question 8

A married taxpayer may file as head of household under the abandoned spouse provisions if all of the following are met except

Accepted Answer

The correct statement is "the taxpayer must have been married for at least one day during the tax year." There is no requirement for the taxpayer to be married for at least two years.

Question 9

Shane and Alyssa (a married couple)have AGI of $340,000 in 2013.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

The couple can claim the itemized deductions of $16,000 for mortgage interest and $6,500 for property taxes, totaling $22,500. They would also be allowed to claim the standard deduction of $12,200 for 2013. Therefore, their deduction from AGI would be $22,500 if they choose to itemize their deductions.

Question 10

Vincent,age 12,is a dependent of his parents.During 2013,Vincent's earned income from wages is $2,600 and Vincent received $3,000 of interest income.The parent's marginal rate is 28% and Vincent's marginal rate is 10%.Vincent's tax is

Accepted Answer

The answer of Vincent,age 12,is a dependent of his parents.During...

Question 11

To qualify as an abandoned spouse,the taxpayer is not required to

Accepted Answer

The answer of To qualify as an abandoned spouse,the taxpayer...

Question 12

Liz and Bert divorce and Liz receives custody of their child.Bert is ordered by the court to pay child support of $10,000 per year,and Liz agrees in writing to allow Bert to claim the dependency exemption for the child.If Liz maintains the home in which she and her child live,her filing status and exemptions claimed will be

Accepted Answer

Since Liz has custody of the child and maintains the home in which the child lives, she can file as head of household and claim one exemption for herself. Bert is allowed to claim the dependency exemption for the child as per their agreement. Therefore, Liz's filing status and exemptions claimed will be head of household and one exemption.

Question 13

Michelle,age 20,is a full-time college student with earned income from wages of $5,200 and interest income of $700.Michelle's parents provide more than half of Michelle's support.Michelle's taxable income is

Accepted Answer

Michelle's taxable income is calculated as follows:
Total income = $5,200 + $700 = $5,900
Less: Standard deduction for a single taxpayer = $12,000 (for 2018)
Net taxable income = $0 (because her total income is less than the standard deduction)
Therefore, Michelle's taxable income is $0, which means she does not owe any federal income tax.

Question 14

Elise,age 20,is a full-time college student with earned income from wages of $4,400 and interest income of $500.Elise's parents provide more than half of her support.Elise's taxable income is

Accepted Answer

Elise's parents provide more than half of her support, so she cannot claim herself as a dependent. Her standard deduction is $1,100 since she has earned income. Therefore, her taxable income is $3,800 ($4,400 + $500 - $1,100). The closest answer choice is B ($150), which is the amount of tax she would owe on her interest income.

Question 15

The filing status in which the rates increase most rapidly is

Accepted Answer

C)The rates on the married filing a separate return schedule increases more rapidly than other individual rate schedules.

Question 16

Dave,age 59 and divorced,is the sole support of his mother age 83,who is a resident of a local nursing home for the entire year.Dave's mother had no income for the year.Dave's filing status and exemptions claimed are

Accepted Answer

Dave can file as head of household because he paid more than half of the cost of keeping up his mother's home (the nursing home). He can claim one exemption for himself and another exemption for his mother, since she had no income and he provided more than half of her support for the year. Therefore, the correct choice is head of household and two exemptions.

Question 17

If an individual with a marginal tax rate of 15% has a long-term capital gain,it is taxed at

Accepted Answer

Individuals with a marginal tax rate of 15% or lower are subject to a 0% tax rate on long-term capital gains.

Question 18

Rena and Ronald,a married couple,each earn a salary of $200,000.They will be required to pay additional payroll taxes in 2013 of

Accepted Answer

The additional payroll tax in 2013 is the 0.9% Medicare surtax that applies to wages above $200,000 for individuals or $250,000 for married couples filing jointly. Since Rena and Ronald are a married couple earning a combined salary of $400,000, they exceed the $250,000 threshold and will have to pay the additional 0.9% Medicare surtax on the excess amount of $150,000 ($400,000 - $250,000). This amounts to $1,350 in additional payroll taxes. Option A is incorrect because they will have to pay the extra payroll taxes. Option C and D are incorrect since they are not realistic as the 0.9% pay rate is too low to bring value to these options.

Question 19

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 20

A corporation has revenue of $350,000 and deductible business expenses of $240,000.What is the federal income tax,before credits?

Accepted Answer

C)Taxable income is $110,000 ($350,000 - $240,000).The tax liability is $22,250 plus $3,900 [.39 × 10,000] = $26,150.

Quiz 2: Determination of Tax